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Lack of bank competition ‘concern’

The Credit Review Office warned over the declining number of banks lending to small businesses.

The declining number of banks making loans to small businesses in Ireland is of increasing concern because of the need to ensure competition and protect customer service, the credit reviewer said.

AIB, the Bank of Ireland (BoI) and Ulster Bank are the three main players and John Trethowan said there had been a minority of cases when the rejection of viable loan applications had left hard-working owners devastated.

The ninth quarterly review from the Credit Review Office, which considers appeals by businesses which have been denied finance, said more than 80% of formal loan applications were allowed but expressed concern about more challenged small businesses and farms.

The reviewer said: “The number of suppliers of SME credit and the level of competition is an increasing concern. In a normal competitive market, any business needs to look after its customers – or you lose them.

“As the level of lending competition in the SME market has declined basically to AIB, BoI, and Ulster Bank, together with some secondary asset and debtor finance players, it is important that the three main banks supplying the SME market maintain a customer focus, even though they also have to prioritise their own corporate recovery.”

Of 21 cases completed in this quarter by the Office, 14 bank refusals were overturned resulting in the banks subsequently supplying 1,180,224 euro of credit, supporting a further 106 full and part-time jobs in the SME sector.

Mr Trethowan said the banks are all of a view that SMEs/farms are central to their forward strategy and that customers are the central driver of their businesses. He said: “This may be the case in the vast majority of the business being done in banks – and for those credit applications which are granted by the banks and for which I am not asked to intervene.

“Some of the appeals to the Credit Review Office, however, fall short of being customer-driven responses, with more effort, lending skill and customer focus required to find workable solutions to challenging situations.

“My reviewers get particularly disheartened when customer focus is not evident and it is clear that a bank has declined an application which has devastated the owners of a hard-working SME or farm, but which is potentially viable with some creativity and banking skill.”

To the end of August, AIB processed more than 22,500 formal applications from SMEs for credit, of which over 20,500 were sanctioned – an approval rate in excess of 90%. A spokesman for AIB said: “The extension of credit on commercial terms to viable SMEs and the consequent growth of the performing AIB loan book are vital to this bank’s objectives of supporting economic recovery, and ultimately returning the bank to sustainability and achieving a tangible return for the taxpayer on the capital provided to the bank.”

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