Credit watch revisited

The pantomime of whether credit is being made available by banks to small firms continues. On the one hand the banks quote various figures of amounts available and being lent. While firms and their representative associations say the banks are “closed for business”. Oh no we’re not. Oh yes they are…

Vistage would be delighted to hear from both members and non-members of their experiences in obtaining credit. Sharing knowledge is what Vistage is all about. Make sure your comments are general and don’t reveal your identity or company.

We covered this issue in a previous blog (Credit watch) when AIB denied credit rationing and spuriously backed up its claims by quoting the Credit Review Office’s first report.

Now the Cork Chamber of Commerce has called on the Credit Review Office to facilitate greater access to credit for small businesses, and to better publicise the services it provides.

Following a meeting with John Trethowan, head of the Credit Review Office, the business group suggested that SMEs have lost faith in banks as a source of credit.

“Eighty percent of respondents to our recent Q2 Economic Trends Survey have indicated that they are not currently seeking bank finance. We feel that this highlights an underlying trend which could indicate that SME’s may not have an appetite to engage with the banks with regards to accessing credit,” said Conor Healy, chief executive of Cork Chamber.

Killian O’ Sullivan, chairman, Cork Regional Chambers, said there is a general unawareness among businesses that the office has the power to look at cases where banks are revisiting terms or delaying decisions, and said there should be greater marketing of the office’s important services.

The chamber also called for greater transparency by the office, and for it to publish its analysis and reported outcomes published monthly rather than quarterly.

Public Meetings

To get to the bottom of these complaints, the Department of Enterprise, Trade & Innovation organised a series of public meetings.

The overriding message from the meetings was that the banks are not to be trusted and that the information being passed to government about lending policies and practices is in large part misleading.

Enterprise minister Conor Lenihan,(with an absurdly long official job title), makes some excellent observations in his column in the September issue of Business Plus magazine:

“Overall, the participants in these sessions expressed the view that the Irish banking sector is not fit for purpose and that managers in the branch network are virtually powerless to make a lending decision.

“There were also complaints of aggressive phone calls from relatively junior bank staff demanding that accounts be put back in order. 

“The grievances of the owner-managers at these meetings could be categorised into four broad themes.

“The first was that the branch manager is no longer a significant person in terms of the decision making process over a loan. The consensus is that the credit decision is made elsewhere and that branch input is minimal. According to some speakers, the absence of discretion for a local manager now means that banks no longer have the confidence of business people.

“The second complaint related to the long delays before a credit decision on a loan application is made.

“Thirdly, the owner managers complained that bank staff lack the analytical and accounting skills to appraise a local business for a loan. There is a perception that lending staff do not have the skill sets to assess cashflow lending as opposed to asset backed lending. Business and farmer representatives alleged that the banks lack lending officers with sectoral expertise.

“Finally, the speakers felt that there is little or no relationship banking going on. 

“There was also concern expressed at the level of security being sought by the banks for lending (personal guarantees, family home etc) and anxiety that such is the turnover of staff at branch level that it is impossible to get to know someone in the bank who would then get to understand their business.

 “There was severe criticism too of the banks’ practise of converting overdrafts into term loans and then apparently presenting this as new lending into business sector.”

In defence of banks

In defence of the banks, the minister points out that both of the major Irish banks have undertaken to make available E12bn worth of lending to small businesses this year and next year.

Also at the height of the boom, lending by non-Irish banks represented 40pc of the credit market in Ireland. Now those non-Irish banks have scaled back their lending activities, he says.

Another factor, he says, affecting the flow of new credit is that many business people are loaded up with debt, either business wise or personally, as a result of property investments, which are now under water.

John Trethowan is hitting the road soon to get his message out there by attending regional meetings with the business organisations. 

According to Conor Lenihan, there is little doubt that the perception of credit rationing is feeding into a general lack of business confidence.

Whether you are Punch or Judy in this pantomime, the number of company closures shows a lack of credit is too often becoming a tragedy.

Roger Brownlie for Vistage