Refusal rate increases from 50% to 54% as banks revert to type.
Constructive refusal disguises extent of real problem.
Demand for SME lending up to 39% from 37% in previous quarter.
60% experienced an increase in bank charges.
Poor access to credit continues to blight SME growth prospects.
ISME calls for stronger Government intervention.
ISME, the Irish Small & Medium Enterprises Association, released the results of its latest ISME Quarterly Bank Watch Survey today (10th March). The survey results show an increase in the bank lending refusal rate to 54% in three months to end of February 2014. The Association expressed concern at this increase, in the light of the recent ending of the requirement to lend up to €8B to SMEs and called on the Government to intervene immediately to ensure that SMEs had sufficient access to bank credit.
Mark Fielding, ISME CEO, commented, “The survey results continue to paint a bleak picture of the SME lending landscape. The refusal rate has increased by 4 points to 54%, just as the Government cancelled the requirement for the bailed out banks to lend the required €8B to SMEs. The speed at which the banks have moved is in stark contrast to their delays in sorting out their balance sheets and expertise gaps. Have the Government learned nothing from dealing with banks which cannot be trusted”.
“The fact that 69% of SMEs continue to believe that Government has had a neutral or negative impact on SME lending is an indication of the perception of the performance of the current administration in relation to this problem. Economic progress will not be sustained if SMEs cannot obtain finance for growth. This trust is clearly misplaced and misjudged as refusal rates have already begun to creep upwards. Talk of a third bank is welcome but more immediate solutions must also be put in place.”
The survey, conducted in the week ending 28th February had 924 owner managers of SMEs respond, a rate of 9.5%. This provides a strong indication of the real SME lending environment. The headline statistics are as follows:
54% of companies who applied for funding in the last three months were refused credit by their banks, a deterioration from the 50% refusal rate, seen in the previous quarter.
39% of respondents had requested additional or new bank facilities in the last 3 months, an increase from 37% in the previous quarter.
23% of initial bank decisions were made within one week; an improvement from the 15% in the previous quarter.
On average, the decision time has remained at 4 weeks, although the wait to drawdown has increased slightly to 3 weeks.
17% of respondents who required bank finance did not apply for various reasons, an increase from 10% in the previous quarter.
Of those 21% were actually discouraged by bank from making application and another 58% were afraid of a reduction in existing facilities.
51% of respondents are customers of their bank for over 20 years, while 89% are over 5 years.
Of the 46% approved for funding, 61% have drawn down the finance either fully or in part.
39% of requests were for term loans, with 43% for overdrafts, or alterations to existing facilities, while invoice discounting/factoring accounted for 6% of requests, with 12% requesting leasing.
60% of respondents had increases in bank charges imposed, while 18% have suffered increased interest.
Reductions in overdrafts were demanded of 35% of SMEs, up from 28% in the previous quarter.
69% state that the Government is having either a negative or no impact on SME lending.
While 51% of respondents are aware of the Credit Guarantee Scheme, 41% know about the Micro Finance scheme, up from 36% in previous quarter.
78% of owner/managers are in favour of an alternative Strategic Investment Bank.
The Government, through the Central Bank must investigate the inordinate delays in getting SME loan decisions, which can be up to 10 full weeks instead of 15 days as set out in the Code. These delays are a cynical method of refusing credit, without actually stating so. Small and medium business owners must not be abused in this manner and the Code must be enforced by Central Bank.
“Awareness of the Credit Guarantee and Microfinance schemes is still far too low. Government must actively promote these schemes to ensure that eligible SMEs avail of them. Red-tape on these, and any future schemes, must also be kept to a minimum. The fact that 17% of those who required funding did not even apply, largely because they were discouraged by the bank or afraid of a reduction in existing facilities, shows the culture of fear and distrust that, not surprisingly, still exists between small businesses and banks.”
The Association, called on the Government to:
Demand honest and reliable reporting from the rescued banks, through the Department of Finance and Central Bank.
Develop the alternative bank/fund – a Strategic Investment Bank/Fund to introduce competition.
Investigate other sources of finance that can be made available to viable cash starved SMEs.
Increase in SME finance availability, by insisting on adherence to bank bail-out conditions.
Increase promotion of the government Partial Guarantee scheme and the Microfinance scheme.
Install better management in bailed-out banks to oversee lending policy and its activity.
“A properly functioning banking system, where bank managers and business owners can work together to ensure business growth and sustainability, is still a pipe dream because of the reduction in bank credit and the lack of bank management expertise. The bank system is still not working and the duty of the Government is to see that it is. Any loosening of the control over the banks must be matched by an increase in viable and sustainable SME lending. This is not happening and Government must act,” concluded Fielding.