•Access to credit continues to be a pivotal issue for SMEs. •SME demand for bank credit remains steady. •Department of Finance role compromised by AIB sale proposal. •Increase in bank charges a concern for businesses. •Delays in bank decision time must be addressed. Thursday 16th June, 2016.
ISME, theSmall and Medium Enterprises Association, released its latest Quarterly Bank Watch Survey today (16th June). The results show an improvement in the loan approval rates for SMEs and the demand remaining steady. While welcoming the findings, the Association warned that refusal rates are still too high and there is much more progress needed in this area and in the length of time taken to get approval.
Commenting on the results of this quarter’s survey, ISME CEO, Mark Fielding said, “Access to finance is still among the top three main concerns of SME owners, behind cost of doing business and economic uncertainty. The refusal rate of 35% is still too high and points to a continued overbearing risk aversion by the main banks and their inexperienced staff. The national figures clearly demonstrate that all three rescued banks are chasing Prudential Liquidity through reduction of the quantity of loans on their balance sheets through a reduction in SME lending.”
“Banks are still not lending to the level appropriate to an economy ‘in recovery’. The statistics from our own Central Bank, the ECB and numerous economists, demonstrate the dearth of appropriate credit. We must put an end to the fiction that bailed out Irish banks are functioning properly. Despite assertions from the banking PR machine, access to credit is patchy and the application process is getting more torturous, with 21% of applications are still pending at end of May.”
“There seems to be a difference of approach in different parts of government. We have one department concentrating on preparing and fattening up one bank for sale and downplaying, if not ignoring any negative signs. On the other hand other ministers acknowledge that there is still market failure in SME banking. Meanwhile small and medium business struggle for finance facilities against the tide of ignorance at branch level of alternative sources of finance.”
The headline statistics are as follows:
• 41% of respondents had required additional or new bank facilities in the last 3 months, compared with 42% in the previous quarter. • 35% of companies who applied for funding in the last three months were refused credit by their banks, a welcome decrease on the 43% rate, seen in the previous quarter. • 21% of applications are awaiting decisions at end of May, a deterioration from the 15% at end of February. • On average businesses are waiting over 4 weeks for an initial decision to be made on loan applications. From then the wait time for drawdowns has increased to 3 weeks. • 26% of initial bank decisions were made within one week; a decrease from the 33% in the previous quarter. • 54% of those who required funding made a formal application, a decrease from 55% in the previous three months, while informal applications are now at 78%. • 54% are customers of their bank for over 20 years, while 84% are over 5 years. • Of the 65% approved for funding, (12% of whom were partially successful), 57% have drawn down the finance either fully or in part. • There was an increase in requests for term loans at 53% (up from last quarter 46%), with a decrease in overdrafts at 32 % (down from 40% in Q1). • Invoice discounting/factoring accounted for 4% of requests (down from 6% in Q1), with 15% requesting leasing (down from 17%). • 31% of respondents had increases in bank charges imposed. • 55% claimed bank fees and charges are a cause of concern, with 58% stating that their bank charges are not fully explained. • 74% state that the Government is having either a negative or no impact on SME lending, an increase of 2% on the previous quarter. • Awareness of government assistance remains high. 77% are aware of the Credit Review Office, while 63% are aware of the Credit Guarantee Scheme and 60% know about the Micro Finance scheme.
“One of the keys to economic revival and sustained recovery is a properly functioning banking system. The cornerstone of the economy is the SME sector, which will never reach its potential starved of appropriate finance. The Government must stop merely acknowledging that we have a banking problem and begin to act decisively.”
“One constant complaint from ISME members is the lack of knowledge of government financial assistance by bank staff. These schemes must be used to assist in financing business but seem to be conveniently forgotten by bankers. The Microfinance scheme, SBCI funding and Government Guarantee scheme must be used in conjunction with ‘normal’ bank facilities.”
The Association, called on the Government to:
• Ensure that the SBCI funds are promoted by banks and used appropriately for SMEs.
• Finalise the restructuring of the re-vamped Government Credit Guarantee scheme and promote it and the Microfinance scheme.
• Investigate the increasing delays in decisions by the rescued banks.
• Demand outsourcing of better management for bailed-out banks to oversee their lending policies.
• Ensure honest and reliable reporting from the rescued banks, through the Department of Finance and Central Bank.
• Investigate other sources of finance that can be made available to viable cash starved SMEs.
“The increased success rate for SME lending applications is welcomed. However the delays by the banks in making decisions and the lack of knowledge must be improved immediately, as hold-ups due to incompetent bankers can delay the growth plans of business”, Fielding concluded.
The survey, conducted in the first week of June, covers the three months of March, April and May. There were 924 SME owner manager respondents, a response rate of 12%. This provides a strong indication of the real SME lending environment.