Banking Sector Committed to Supporting Viable SMEs in these Challenging Times

Latest Review shows at least three-quarters on average of all SME credit applications approved

Confirms a continuing reduction in the demand for credit by SMEs – 23% fall in the number of applications to banks in the seven-month period to Sept’09

Credit demand impacted by difficult trading conditions and reduced turnover for SMEs

Banking sector remains supportive of viable businesses through the €32.7 billion total credit outstanding and various non-finance initiatives

The Irish Banking Federation (IBF) pointed today to the second Mazars Review of Lending to SMEs – details of which have appeared in media reports – as highlighting the banking sector’s commitment to supporting viable SMEs through the ongoing challenging economic environment. Notwithstanding the severe contraction in economic activity, the Review shows that during the period covered (March-Sept 2009), total outstanding credit to the SME sector stood at €32.7 billion – representing a marginal decline of 2.6% from €33.6 billion recorded for the period covered (June’08-Feb’09) in the first Mazars Review.

The extent of that contraction is clearly reflected in this latest Review which shows that some four out of five SMEs surveyed (78%) report a continued decline in turnover – with nearly half of them (45%) reporting a decline of 20% or more. Notably going in the opposite direction is the extent to which SME customers are not meeting their repayment obligations – rising (in value terms) from 15% of banks’ lending in June’08 to 22% in February’09 and to 32% by Sept’09.

Not surprisingly, this gives rise to a continuing reduction in the demand for credit. Less than half (46%) of SMEs surveyed requested credit during the seven-month period to end-Sept’09 – down six percentage points on the previous period. And it is notable that at least three-quarters on average of these credit applications were approved – amounting to some 70,000 approved credit applications and a drawdown of more than €2.6 billion in loans and finance & leasing in that period.
Welcoming the Review’s findings as evidence of the banking sector’s support for viable businesses, the IBF’s Chief Executive, Pat Farrell, also pointed to important initiatives:

“The IBF and many of our member banks have been working through the Government’s Credit Supply Clearing Group with the relevant departments/agencies and the SME representative groups on policy recommendations contained in the first Mazars Review. Already we have seen significant developments in the form of the new, independent credit review process to be chaired by John Trethowan and by way of various non-finance information/advisory/mentoring supports. We remain fully committed to this process.”

The Irish Banking Federation (IBF) is the leading representative body for the banking and financial services sector in Ireland, representing over 70 member institutions and associates, including licensed domestic and foreign banks and institutions operating in the financial marketplace here.

Further Information: Felix O’Regan, Head of PR and Public Affairs, IBF, tel. 6715311, 087 6481644

Financial Regulator’s Statistics on Mortgage Arrears Illustrate Benefits of Borrower-Lender Engagement, says IBF

  • Forbearance by mainstream lenders assisting many borrowers
  • Repossessions increase but still low by international standards
  • Sub-prime lenders the main driver of repossessions

The Irish Banking Federation (IBF) believes that the latest data on private residential mortgage arrears and repossessions, published today by the Financial Regulator, reaffirms the key importance of early communication between distressed borrowers and their lenders and illustrates how such communication is delivering positive results for all parties concerned.

Welcoming publication of this comprehensive data set for the whole of the private residential mortgage market – covering IBF mainstream mortgage lenders together with sub-prime lenders who are not IBF members – the IBF points to evidence of the very real benefits of customer-lender communication when the data for their members only is stripped out. The earlier communication takes place the better so as to avoid legal proceedings; but even after enforcement proceedings have commenced there remains scope for a repayment arrangement to be found.

Mainstream lenders continue to show forbearance on arrears
IBF mortgage lenders had a total of 15,647 mortgage accounts in arrears for more than 180 days in the quarter ended Sept’09 (the market total was 17,767). While this level of arrears would normally be expected to give rise to legal action in most cases, the reality is that court proceedings have been issued in just 18% of such cases. Also, no action by way of formal demand was taken by IBF mortgage lenders in the case of two-thirds of all accounts in arrears for more than 90 days. This clearly illustrates the extent to which initiatives such as the statutory Code of Conduct on Mortgage Arrears and the more recent IBF Pledge to Homeowners are having a beneficial impact.

Mainstream lenders remain open to constructive negotiation even in court proceedings
IBF mortgage lenders had a total of 184 enforcement proceedings before the courts (the market total was 218) during the quarter ended Sept’09. While a third were granted repossession orders, half of all of these cases (50%) were settled through negotiation – confirming the value of maintaining communication and engagement at all times.

Mainstream lenders treat repossession as a last resort
IBF mortgage lenders repossessed 18 properties on foot of a court order and 64 following voluntary surrender or abandonment during the third quarter of 2009 (the market total was 110). Every opportunity is taken to avoid repossession – reflected in the fact that the number of such properties in their possession at end-Sept’09 equates to a fraction, or just 0.02%, of the total number of mortgage accounts. This is low by international standards – for example, the corresponding statistic for the UK is projected to be 0.43% for 2009, which is over 20 times the rate here.

Sub-prime lenders are the main drivers of repossession
The Financial Regulator’s data shows that sub-prime lenders account for just 2% of the total number of mortgage accounts (which is 791,634), but they account for nearly half (42%) of all repossessions.

Commenting on the data, IBF’s Chief Executive, Pat Farrell, stated:“Publication by the Financial Regulator of this data on arrears and repossessions is welcome. It illustrates the direct beneficial impact which various statutory and non-statutory measures are having in alleviating the situation – particularly for the customers of mainstream lenders who are IBF members. We are acutely aware of the pressures facing some homeowners in the current economic environment and remain firmly of the view that – where genuine repayment difficulties arise – early, constructive communication between the borrower and the lender is the best way to deliver mutually-acceptable outcomes.”

Notes 
The following IBF mortgage lenders support the IBF Pledge to Homeowners as well as the statutory Code of Conduct on Mortgage Arrears.

ACC Bank
AIB Bank
Bank of Ireland
Bank of Scotland (Ireland)
EBS Building Society
Irish Nationwide Building Society
KBC Bank Ireland
Leeds Building Society
National Irish Bank
Permanent tsb
Ulster Bank

The Irish Banking Federation (IBF) is the leading representative body for the banking and financial services sector in Ireland, representing over 70 member institutions and associates, including licensed domestic and foreign banks and institutions operating in the financial marketplace here.

Further Information: Felix O’Regan, Head of PR and Public Affairs, IBF, tel. 6715311, 087 6481644

New review process for SME credit applications a constructive development

The Irish Banking Federation (IBF) views the announcement by the Minister for Finance today to establish an independent review process for small and medium sized enterprises (SMEs) whose formal applications for credit facilities have been declined by a credit institution as constructive and helpful in building trust between the banking sector and SMEs.

Research undertaken by Ipsos MRBI as part of the independent Review of Lending to SMEs by Mazars (June 2009) shows business respondents advising a credit decline rate of 24%, while banks report an average decline rate of 14%. This new process will provide a mechanism to SMEs so declined to take their case to an independent review body once they have exhausted the credit institution’s own appeals mechanism. In this way, small business proprietors will be afforded a further opportunity to present to an independent body the facts and figures on the viability and repayment capacity of their business proposals.

While it remains to be seen how this review process will actually operate in detail, taken together with the existing statutory Code of Conduct for Business Lending to SMEs which facilitates access to credit for sustainable business propositions, it should be of further assistance in addressing the vexed issue of the supply of credit to SMEs.

“As the total level of lending documented in the Mazars report has shown, banks remain supportive of the SME sector through these very challenging times; not just in terms of finance but non-financial supports also. This new review process should provide further assurance to SMEs seeking credit for viable business propositions,” according to Pat Farrell, IBF Chief Executive.

Note: The Irish Banking Federation (IBF) is the leading representative body for the banking and financial services sector in Ireland, representing over 70 member institutions and associates, including licensed domestic and foreign banks and institutions operating in the financial marketplace here.

Further Information: Felix O’Regan, Head of PR and Public Affairs, IBF, tel. 6715311, 087 6481644