The Minister for Finance, Mr. Michael Noonan, TD, publishes independent report on the demand for credit by Small and Medium Enterprises (SMEs)
The Minister for Finance, Mr. Michael Noonan T.D. has today (5th of July 2012) published the SME Lending Demand Survey. This independent report was carried out by specialist firm Ipsos MRBI in conjunction with Mazars and covers the period October 2011 to March 2012 and is available on the Department of Finance website www.finance.gov.ie. This report follows on from a similar survey covering the previous six month period.
Commenting on the Government’s commitment to ensuring access to credit for viable SME’s Minister Noonan stated:
“This Government recognises the vital role the small and medium business sector plays in the Irish economy and SME’s are sustaining and creating thousands of jobs across the country. The SME sector will play a key role in Ireland’s continued economic recovery and it is essential that viable companies have access to credit to enable them to grow and meet their full potential.
The Government has set lending targets of €3.5 billion for 2012 for each of the two domestic pillar banks, Bank of Ireland and AIB and the EMC will continue to meet with the banks to monitor their progress in meeting these targets.
It is essential that the banks are both supporting their existing customers and providing credit to viable new and traditional businesses and if an application is refused I would encourage SME’s to apply to the credit review office where upwards of 60% of reviews are overturned and credit is supplied.
Finally, imminent Government initiatives such as the Microfinance Loan Fund and the Temporary Partial Credit Guarantee Scheme will be important interventions in improving the supply of credit to the SME sector and ensure that this vital element of the economy can play a key role in supporting economic recovery.”
shows that during the 6 month period surveyed:
Excluding applications pending, 72% of those requests were approved or partially approved (Sep 11: 70%).
In relation to the 62% of SMEs who did not request bank credit in this period, 78% did not need it/had sufficient internal reserves, while 6% believed the banks were not lending.
Trading condition remain challenging with 41% of SMEs reported a decrease in turnover (Sept 11: 28%) while 27% reported an increase (Sept 11: 26%).
The report also found that 51% of companies expressed the view that banks were not lending. However, the report found that 45% formed their opinion from either media reports or statements from business representative groups, 35% from the lending experience related to them by business peers while just 20% of companies based their view on their own direct lending experience.
Welcoming the report for the further clarity it brings to the pattern of credit demand by the important SME sector, the Minister for Finance, Michael Noonan TD said:
“This independent report, in conjunction with the report covering the previous six month period, will assist my Department and the Credit Review Office in monitoring the business environment in which SMEs operate, their relationships with the banks and the availability of credit to the sector. I would like to thank the 1,505 companies who participated in the survey as the findings will be of benefit to all stakeholders.”
5th July 2012
Notes for Editors
Key Conclusions of the Report
Demand for Credit
38% of SMEs requested credit
62% did not request credit
Most demand was for cash flow and working capital purposes.
Reasons for not requesting credit
78% did not need it or have sufficient internal reserves/funds
6% thought or believe the banks are not lending
Decisions on credit
59% of credit applications were approved or partially approved
23% of credit applications were declined and
18% of credit applications are still pending.
When the pending applications are excluded, the approval rate is 72% and 28% declines.
81% of SMEs who were refused credit did not agree with the reason provided by the bank for the refusal.
In 71% of cases where formal applications were declined, the bank did not inform the borrower of the right to internal review.
79% of SME’s reported employee levels have remained constant or increased with 21% of companies surveyed indicated they had decreased employee numbers in the period
72% of enterprises reported they had made a profit or achieved a break even position in the six months to March 2012.
Awareness of Credit Support
71% of SMEs were aware of the existence of the Credit Review Office, while 62% were aware of the Code of Conduct for Business Lending to SMEs.
Background on Report
Bank of Ireland and AIB agreed in July 2011 to fund an independent review on credit demand by SMEs, which was commissioned by the Department of Finance following a public tender competition. The first review covered the period April-September 2011. The review published today covered the six month period from October 2011 to March 2012 .
The review examined the demand for credit through a telephone survey covering over 1,500 businesses. The survey was of high quality, drew a carefully constructed sample from a large database of SMEs, made repeated calls to ensure a full response and asked factual questions. The full questionnaire is included in the report.