Ireland has the second lowest approval level for SME loan applications in the euro zone, just ahead of Greece.
The new figures are contained in a study published this morning by the Central Bank of Ireland.
Irish banks are more likely to reject more business loan applications than any other state in the euro zone except Greece, with SME’s in Ireland having 50% less chance in having an application succeed.
The new study stated that “high rejection rates in Ireland cannot be explained by the quality of the pool of potential borrowers”.
More than 25% of businesses seeking a loan or an overdraft were rejected in the six months to March.
That is more than double the euro average and compares with one in 28 in Germany.
Also in the research, within the euro zone, Ireland has the second-highest share of “discouraged business borrowers”.
This number is twice the euro area average.
The Irish Bankers’ Federation has continually rejected any claim that banks are rejected loans to qualifying businesses’.
The federation has attributed drastically reduced new loan issuance to reduced demand.
Today’s report finds that this claim is questionable.
The report states that a decline in credit of the kind currently being experienced “arguably requires more immediate action, given the potentially serious impact on economic growth”.
“International literature has found that credit-constrained firms are more likely to close down or shed employment, less likely to invest in technology, spend on marketing, or enter export or import markets,” the research states.
On RTE’s News at One, Central Bank economist Fergal McCann said his study uses the Mazars report, alongside a ECB/European Commission (SAFE) survey to give a more accurate picture of the situation.
Mr McCann said regardless of which set of figures you use, Ireland ranks second only to Greece in the number of rejections for loans to small business.
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“What we see definitively, regardless of whether we use the Mazar or the SAFE surveys, is that on the supply side, Ireland does appear to be one of the toughest environments in the euro area, whereas on the demand side, Irish firms appear to be looking for finance at something like a regularity that is similar to the European average,” he said.
He rejected claims by the IBF that the survey was “populist spin”.
“The Central Bank is an independent institution. All we have done in this report is place Ireland in a ranking of European countries using two useful and valuable date sources and trying to come up with as consistent a view as possible. And spinning doesn’t come into it whatsoever,” he added.
AIB has issued a statement saying the bank exceeded its SME lending target of €3 billion in 2011 and is 17% ahead of its year to date target of €3.5 billion for 2012.
“To date this year AIB has sanctioned 92% of formal applications,” it added.
However the bank did acknowledge that today’s credit process is more extensive than it was in previous times.
It said it believes this is appropriate and “is in no way meant to be an obstacle to obtaining credit.”
Report confirms its worst fears – ISME
ISME has said the report confirms its worst fears. The association has called on the Government to immediately demand full and complete disclosure from the bailed out banks on lending to SMEs.
Chief executive Mark Fielding said bankers are not telling the full story.
“While Irish banks have been recapitalised with enormous fiscal injections, the truth of the matter is the bailed-out banks are not fixed, rescued bankers continue to utter untruths, banking reform is delayed and banking policy is turning good business bad. These same Irish banks refuse to lend to viable small and medium enterprises,” he said.
In a statement, the Irish Hotels Federation said Irish hotels continue to face unjustifiable difficulties in accessing appropriate levels of credit from financial institutions.
It says 39% of hoteliers have experienced difficulties accessing standard/normal credit facilities from their banks over the last year according to recent findings from its quarterly industry barometer.
This has been going on for too long – PIBA
PIBA, the country’s largest group of financial brokers, has called for greater competition in the Irish market.
It says the report on bank lending “lifts the cloak of pretence that the banks are willing to lend to anyone other than a chosen few.”
It added that “the tragedy is that it has been going on for far too long and indeed worsened in the first quarter of this year over the last quarter of last year.”