SMES suffer as lending falls €1.7bn in 12 months

THE twin pressures of falling demand and more stringent conditions from banks again affected the level of borrowing by Irish firms in the first three months of the year.

Lending to small and mediumsized enterprises in Q1 fell by €1.7bn over the year and was down by € 217m compared to the last three months of 2011, according to the latest figures from the Central Bank.

Credit advanced to all non-financial, non-property-related enterprises fell by €558m (1.4pc) over the quarter and €2.2bn over the year (5.2pc), bringing total credit outstanding to non-financial, non-property-related enterprises to €39.8bn.

The figures add weight to the argument from business lobby groups that AIB and Bank of Ireland will struggle to hit the €3.5bn SME lending target set by the Government. And, according to the head of the Credit Review Office, John Trethowan, it ‘may be a bit of a stretch’ to reach this year’s targets of €3.5bn.

‘They may not meet them, but it is too early in the year to say that they won’t,’ he said.

Lending by the two banks was down 15pc in the first quarter on last year, the figures show.

Mr Trethowan was disappointed there was not more evidence of enterprise risk-taking by the banks.

‘I am not asking banks to chuck their policies out the window, but certainly to be more flexible,’ he said. ‘There needs to be some level of discretion around that to let bankers who can see a viable deal – which may be outside policy – to let them to make the loans.’

He claimed that the banks drove ‘a coach and horses’ through their lending policies during the boom, to the point where there were so many exceptions that there were no policies.

‘Banks need to be more flexible’

The Central Bank figures show that credit advanced to propertyrelated enterprises engaged in construction and real estate activities was 0.2pc lower over the year. Annual lending to SMEs in these sectors had fallen by 3.7pc.

Deposits held by Irish resident private-sector enterprises in credit institutions in Ireland declined by €347m (0.5pc) during Q1. Non-financial enterprise deposits were €35bn at the end of Q1, following a quarterly drop of € 1.1bn ( 3pc). The annual rate of decline was 4.7pc.