29% of decisions pending; a much too long time-frame.
Average wait of eight weeks from request to drawdown.
Lack of adequate training in banks a cause for concern.
Refusal rate increases slightly to 33%.
Two main banks must be monitored and instructed to promote SBCI funds.
The latest ISME, Quarterly Bank Watch Survey released today (8th June), shows that while demand for bank lending has increased to the highest in eight years, the delays in bank decisions has increased further, creating problems for SMEs who are ready to expand and develop their business. The Association called on the Central Bank to investigate these delays to ensure that SMEs are properly serviced by the bailed out banks as the economy shows fragile signs of recovery.
ISME CEO, Mark Fielding, commented on the results of the survey, “Businesses cannot be kept on the long finger by banks who do not have sufficient lending expertise available to manage the increase in demand by SMEs. There is always some barrier placed by banks, initially they lied about quantity of funds available, when their refusal rate was 58%. The SBCI is now offering long-term, low interest EU funds and they now delay decision making. This must stop or these rescued banks will stall recovery in the SME sector, where jobs are vital”.
“Businesses looking to expand, buy new equipment or hire new staff etc. are usually working on a very time sensitive basis. They cannot afford to have the banks slowing down their plans and making it impossible to avail of potential opportunities. These delays stem from a lack of proper training and efficiency in bank staff and, despite bank management assurances that training is ongoing, a Central Bank investigation is called for.”
The Association is also concerned that the availability of SBCI funding is not being promoted by the banks as an alternative source. While ‘head-office’ may be aware of these funds the managers and staff at branches seem to ‘forget’ or ‘overlook’ the funds and ‘kick the proposals upstairs’ out of fear of making a decision. This results in lengthening delays for SMEs, intent on growth.
The survey, conducted in the last week of May, had 726 SME owner manager respondents, a response rate of 14.5%. This provides a strong indication of the real SME lending environment.
The headline statistics are as follows:
29% of applications are pending, up 2% from the previous quarter.
15% of initial bank decisions were made within one week; a decrease from the 23% in the previous quarter.
On average, the initial decision time has remained at just over 4 weeks. The wait to drawdown has increased from 3 weeks to 4 weeks.
45% of respondents had required additional or new bank facilities in the last 3 months, compared with 43% in the previous quarter.
33% of companies who applied for funding in the last three months were refused credit by their banks, a slight decrease on the 32% refusal rate, seen in the previous quarter.
55% of those who required funding made a formal application, a decrease from 64% in the previous three months.
Informal applications have remained at 82%.
14% of respondents who required bank finance did not apply for various reasons, no change on the previous quarter.
48% of respondents are customers of their bank for over 20 years, while 87% are over 5 years.
Of the 67% approved for funding, 62% have drawn down the finance either fully or in part.
47% of requests were for term loans, with 43% for overdrafts, or alterations to existing facilities, while invoice discounting/factoring accounted for 7% of requests, with 19% requesting leasing.
29% of respondents had increases in bank charges imposed. 12% have suffered increased interest rates- three times the figure for the last Quarter.
60% state that the Government is having either a negative or no impact on SME lending, no change on the previous quarter.
Awareness of assistance has increased. 80% are aware of the Credit Review Office, while 63% are aware of the Credit Guarantee Scheme and 61% know about the Micro Finance scheme, up from 56% in previous quarter.
64% of respondents are aware of the code of conduct for business lending to SMEs.
The Association, called on the Government to:
Investigate the increasing delays in decisions by the rescued banks.
Demand honest and reliable reporting from the rescued banks, through the Department of Finance and Central Bank.
Demand outsourcing of better management for bailed-out banks to oversee their lending policies.
Ensure that the SBCI funds are promoted by banks and used appropriately for SMEs.
Investigate other sources of finance that can be made available to viable cash starved SMEs.
Increase promotion of the re-vamped Government Credit Guarantee scheme and Microfinance scheme.
“Although a decrease in bank refusal rates is to be welcomed, delays are causing damage to growth prospects. Internally within the banks there is a new culture of fear of making a mistake, due to lack of ‘risk analysis’ expertise and the threat of demotion, causing bottlenecks in decision-making. The Central Bank needs to carry out an external review of the capacity of the rescued banks to service the SME sector before banks stall whatever new growth there is.” Fielding concluded.