New initiatives underway to support the bank/SME relationship
The Irish Banking Federation (IBF) welcomes the clarity which the “SME Lending Demand Study”, published today by the Department of Finance, brings to the important issue of lending to SMEs.
Against a backdrop of continued difficult trading conditions for SMEs, the study shows reduced turnover and considerably reduced demand for credit. And where credit is being sought by just over one-third (36%) of SMEs surveyed, it is largely for renewal or restructuring of existing facilities. Notably, of those who did not apply for credit just 7% advise that it was because they believe that banks are not lending.
In finding that 54% of applications were approved (fully or partially) with a further 23% pending – a 70% approval when applications pending are excluded – the study significantly points to the impact that trading activity and in particular profitability have on banks’ credit decisions. As the study states: “This suggests that banks are basing credit decisions on business performance and profitability factors”. As the study further confirms, businesses with increasing or stable turnover and profitability are much more likely to be approved for credit.
Notwithstanding the challenging environment faced by all, IBF and its member banks remain fully committed to supporting in every way possible the SME sector as an all-important driver of economic recovery and growth. To this end, the sector has been working on a range of new initiatives to support the bank/SME relationship, which includes the following.
- Development with Chambers Ireland of a new website for SMEs which will be a comprehensive source of information on small business finance. It will be launched in January.
- Collaboration with other business sectors in developing a business plan template which would be adopted by borrowers and lenders alike. It is expected that this work could be completed early in the New Year.
- Implementation in January of the revised Code of Conduct for Lending to SMEs.
According to Pat Farrell, IBF Chief Executive:
“The SME Lending Demand Study helps to bring focus to the realities of the marketplace for both businesses and banks at the present time. With SMEs facing very challenging trading conditions, the ongoing consideration for all lenders must be the viability and thus the bankability of the credit applicant. At the same time, the Study points to areas where lenders’ own processes can better accommodate the needs of the business borrower and where further business supportive initiatives can be developed. As a sector we remain fully committed to supporting SMEs in every way possible.”
Note: To view a copy of the report on the Department of Finance website, please click here (this is an external link).
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.
Information: Felix O’Regan, Head of PR and Public Affairs, IBF, tel. 6715311, 087 6481644