Report finds total lending to sector in period June ’08 to February ’09 remains constant at €34.5 billion despite severe contraction in economy
Banking sector remains supportive of viable, sustainable businesses with no significant changes to terms and conditions of credit approval or drawdown
Banking sector fully recognises changes facing SMEs and highlights the importance of early and open communication in addressing particular difficulties
Friday 10 July, 2009. The Irish Banking Federation today welcomed the report “Review of Lending to SMEs” by Mazars and highlighted the sector’s commitment to supporting SMEs through the ongoing challenging economic environment. The sector remains supportive of viable, sustainable businesses as evidenced by the findings of the Mazars report which indicates that during the period of its review (June 2008 to February 2009), total lending to the SME sector remained constant at €34.5 billion, despite the severe contraction the economy.
The banking sector engaged constructively with Mazars in compiling the report and this included providing access to a sample of credit files identified by Mazars as being reflective of typical SMEs throughout Ireland. The report provides the first independent assessment of access to credit for SMEs in Ireland and establishes a strong baseline for the future. The sector believes the findings of the report reflect the general efforts of the sector to support SMEs in the current environment:
“The pricing and security conditions attaching to the applications for credit from new customers to individual banks appear to be reasonable in the context of normal commercial and business criteria and do not appear to differ significantly from those offered to existing customers.”
“In the case of declined applications, in general, for those credit files sampled, the decision to decline seemed reasonable in the context of normal commercial and business criteria and given the information held on file.”
“…the value of new applications for credit decreased by an average of 42%. As such, a reduction in the value of lending would normally be expected. The absence of such a reduction, would suggest that credit facilities are being re-negotiated, re-structured or extended to facilitate longer repayment periods or interest only repayment of credit and that the banks are taking on more risk in that regard.”
The new capital adequacy regulatory requirements (Basel II) have brought changes for banks in the way they assess and monitor credit risk. These changes are reflected in the formal credit rating systems used by banks when assessing the individual risk features of each loan application. In the interests of promoting better understanding of the impact of these changes, we have developed with our members a brief business guide to the credit rating process, The Credit Rating Process for Business Customers Explained, which can be viewed on our website http://www.ibf.ie/businessset.html. The IBF and its members continue to work with SME representative organisations and the Government and its agencies to further communication between banks and their customers.
In recognising the need to continue to monitor the appropriate flow of credit to SMEs the IBF will continue to work with its member banks to consider the necessary information and actions in support of both Government Policy and the interest of the SME sector.
Commenting on the report the Chief Executive of the Irish Banking Federation Pat Farrell said “Given the critical role SMEs continue to play in the Irish economy it is vital that the banking sector provides the highest possible levels of support especially during these immensely challenging times. While acknowledging that difficulties will inevitably arise the sector is fully committed to doing everything possible to support viable and sustainable businesses. Ongoing engagement between the sector and SMEs must be a priority and the sector will respond constructively to issues raised by the Mazars report and SME representative bodies.”
For further information contact:
Pippa Halley, Irish Banking Federation, 01 671 5311