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The sight and sound of AIB begging for an extension to the state banking guarantee probably did not engender a great deal of sympathy from SMEs. It certainly did not from this correspondent.
RTE business editor David Murphy says the fact AIB is “calling for it, shows things would be very difficult if the bank guarantee was not there”.
As long as AIB, and other banks in the scheme, are protected under the bank guarantee they are able to borrow money at a decent rate on the wholesale market – and keep lending to customers.
In an RTE interview Friday 7, July, Anglo’s chief exec Mike Aynsley joined in and said the bank guarantee will have to be extended because the financial system has not yet stabilised.
But their public pleas for an extension to the guarantee are too close for comfort with our own requests (and often denials) for more time and credit.
One wonders, based on AIB’s latest and awful results, how viable it and other banks, including Anglo, would be without this comfort blanket guarantee.
With sad irony, in an Irish Independent article by Emmet Oliver defending its lending practices, chief exec Colm Doherty is quoted as saying that certain SMEs were not going to make it through the recession and “there will be companies not viable into the future.”
These would be the firms AIB will not lend to…
However, AIB denies accusations of ‘credit rationing’. In an interview Mr Doherty gave to RTE Morning Ireland, despite what SMEs are saying, AIB claims it is still lending to the sector, quoting numerous figures which RTE’s David Murphy describes as “massaging the figures” on loan approvals.
But in Eoin Burke-Kennedy’s report in the Irish Times he writes that firms are finding it easier to borrow money – according to figures from the Central Bank which show new lending to businesses exceeded loan repayments in May and June for the first time in 10 months.
This follows on from the Credit Review Office’s first report mid-July that found no evidence that AIB and Bank of Ireland are constraining the supply of credit to the SME market.
Minister for Finance, credit reviewer, John Trethowan said there was no evidence the two main banks were engaging in lending policies which inhibited the supply of credit to viable businesses.
However, Irish Times reporter Suzanne Lynch wrote: “His report raised concerns about some practices in the banks, including a lack of experience among some front line bank staff in dealing with SMEs as well as anecdotal reports of banks requesting that borrowers hold the amount of money requested for overdraft facilities on deposit with the bank”.
But the number of cases going to the CRO was lower than expected, with just 12 firms going through the formal process at this stage. For credit reviewer John Trethowan, this may suggest that lending problems were fewer than some figures would suggest.
He told the Sunday Business Post’s Samantha McCaughren: “You hear numbers being bandied around about credit refusals,” said Trethowan, ‘‘and this makes me wonder why we’re not getting more applications.”
However, he pointed out that the office dealt only with AIB and Bank of Ireland and with loans which have been turned down since April. That may have slowed down case review requests.
Whether or not the bank guarantee scheme is extended is not down to the Irish government but to the EC. And according to Niamh Hennessy of the Irish Examiner, there is enough precedent to believe the scheme will be extended.
The commission has already approved the extension of an aid scheme for Austrian credit institutions and a Latvian bank guarantee scheme to the end of the year. It has also extended bank support schemes in Sweden and Germany and a recap scheme in Hungary, she wrote.
Credit rating agency Fitch warns Irish banks that it will be challenging but manageable for them to get credit when the guarantee expires. Fitch expects the EC to allow the guarantee to be extended.
While propping up dysfunctional (or in Colm Doherty’s parlance – “not viable into the future”) banks is bad news for public finances, for the private sector we must hope the scheme is extended, for without it there will be little credit available for SMEs.
This is a subject we will no doubt return to.
What are your experiences of obtaining credit?
Roger Brownlie, for Vistage
9:56 am on August 23rd, 2010
[...] 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 [...]