• Reduction in refusal rate to 38%, down from 42% in previous quarter. • Increased demand for SME lending remains at 44%, highest since May 2009. • Concern over delays in bank decisions, as 27% of applications still pending, up from 21%. • 42% expect to approach SBCI for funding within when it eventually opens. • Deserting banks could leave a trail of destruction, if no Government intervention.
ISME, Monday 1st December, 2014.
The latest ISME Quarterly Bank Watch Survey released today (1st December) by the Irish Small & Medium Enterprises Association, shows a continued and welcomed reduction in refusal rates in the three months to end of November. The Association however sounded a note of caution as the banks’ decision time has deteriorated as over one quarter of applications were still pending, up from 21% in the previous quarter.
Commenting on the results of the survey, ISME CEO, Mark Fielding said, “As we slowly exit the recession, there are tentative signs that the banks are releasing more funds into the SME sector as business shows increased turnover and profitability projections. The still fragile balance sheets which reflect the losses in 2008 to 2013 are being factored in in increased interest but the increased lending is to be welcomed”.
“The number of applications that are pending continues to increase, which is a concern. Banks must become more efficient in dealing with credit requests. It is not acceptable that the bailed-out banks delay economic recovery through their unproductive and slow work rates. The Association is demanding that the Central Bank investigate this common thread as all three main banks individually have increased the pending applications, which could temporarily disguise a reluctance to issue a refusal.”
There continues to be a major issue with SME loans caught up in the deserting and burst banks in obtaining alternative finance. The danger is that the loans will be bundled and sold off to ‘vulture funds’ looking for a ‘killing’, without a thought for the businesses or the jobs involved. Government must get involved through a guarantee scheme to save these SME businesses.
The survey, conducted in the week ending 28th November had 852 owner managers of SMEs respond, a rate of 11%. This provides a strong indication of the real SME lending environment.
The headline statistics are as follows:
• 38% of companies who applied for funding in the last three months were refused credit by their banks, an improvement on the 42% refusal rate, seen in the previous quarter. • There are increasing delays in bank decisions, as 27% of applications are still pending, up from 21% in the previous quarter. • 44% of respondents had required additional or new bank facilities in the last 3 months, the same as the previous quarter. • 62% of those who required funding made a formal application, a decrease from 72% in the previous three months. • Informal applications have increased from 71% to 75% since the previous survey. • 30% of initial bank decisions were made within one week; an improvement from the 18% in the previous quarter. • On average, the initial decision time has decreased to just over 4 weeks with the wait to drawdown at a further 2 weeks. • 10% of respondents who required bank finance did not apply for various reasons, a two percent decrease on the previous quarter. • 48% of respondents are customers of their bank for over 20 years, while 85% are over 5 years. • Of the 62% approved for funding, 65% have drawn down the finance either fully or in part. • 58% of requests were for term loans, with 28% for overdrafts, or alterations to existing facilities, while invoice discounting/factoring accounted for 5% of requests, with 21% requesting leasing. • 36% of respondents had increases in bank charges imposed, while 14% have suffered increased interest rates. • Reductions in overdrafts were demanded of 23% of SMEs, up from 21% in the previous quarter. • 66% state that the Government is having either a negative or no impact on SME lending, continuing the downward trend in this response. • 69% are aware of the Credit Review Office, while 57% are aware of the Credit Guarantee Scheme and 47% know about the Micro Finance scheme, up from 40% in previous quarter. • 76% of owner/managers are in favour of an alternative Strategic Investment Bank. • Only 35% of respondents are aware of the code of conduct for business lending to SMEs, a decrease from 40% in the previous quarter.
There is a great need to promote the delayed Strategic Banking Corporation of Ireland (SBCI), now expected to open for loans in January next. While 42% of respondents stated that they would approach the SBCI a similar number needed more information on the workings of the fund. 22% expected to require SBCI funding within 6 months while a further 20% stated between 6 months to one year.
The Association, called on the Government to:
• Demand honest and reliable reporting from the rescued banks, through the Department of Finance and Central Bank.
• Use the Partial Guarantee scheme to bridge funding gaps in businesses attempting to rehouse loans from the ‘deserting’ and ‘withdrawing’ banks.
• Investigate other sources of finance that can be made available to viable cash starved SMEs.
• Introduce immediately the alternative bank/fund (SBCI) to release working capital funds to SMEs.
• Increase promotion of the re-vamped Government Partial Guarantee scheme and Microfinance scheme.
• Outsource better management for bailed-out banks to oversee lending policy and its activity.
“It is essential that the country gets back to normal prudent lending as soon as possible. It is also imperative that longer work-out periods are agreed and that the challenged loans from deserting and burst banks are accommodated in a similar fashion to the bank bail-out, to allow vulnerable but viable SMEs to trade out of their troubles”, Fielding concluded.