Banking Crisis

CSO Access to Finance Survey

Here‘s a new and extremely useful survey released by the CSO on access to finance. The survey focuses on SMEs. Specifically:

The scope of the survey was enterprises in the non-financial market sectors … that employed between 10 and 249 persons in the year 2005 and which continued to employ at least 10 persons at the time of the survey (September 2010).

There’s a lot of information in it but the key point is the following:

Enterprises that applied for loan finance had a success rate of 90% in 2007, compared with 50% in 2010. Enterprises applying to banks for loan finance were successful in 95% of cases in 2007, while in 2010 the success rate dropped to 55%.

This survey is part of an EU-wide initiative so we can find comparisons for the figures. See page 11 of this document. The rejection rates in Ireland seem to be far higher than in other EU countries. (In doing these comparisons, note that in the reporting of the Irish survey results “The success rates in this table reflect the share of enterpises that were fully or partially successful in obtaining finance.”)

This seems to pretty definitively disprove the “weak demand” explanation for falling credit.

19 replies on “CSO Access to Finance Survey”

Finally, a independently generated statistic that appears to be in line with what we have all been hearing anecdotally.

I wonder what effect the number of business failures is having on these figures.

Is it possible that the “no hoper” businesses are being refused credit (probably for the best) and the surviving businesses are not seeking more credit?


The line we are spun is that the reason for low lending is because nobody is asking for money becasue they are not confident of being able to pay it back or are deleveraging. These stats prove that explanation to be a lie. No doubt another lie will be concocted to give another explanation. however, they can’t have it both ways: (i) too few applicants, and (ii) plenty of applications but borrowers not credit worthy. It’s one or the other. The banks already chose story (i) so it is a bit late to go back to story (ii).

Shock and horror. In the middle of a huge recession, struggling SME’s are finding it difficult to obtain credit. Has anyone looked at business failures of the last couple of years and seen how many viable businesses have failed because of an actual refusal of credit or how many of them were clearly unsustainable businesses.

The Irish Independent this morning had the headline “Shortage of viable small businesses the real reason banks are not lending”

And the general tenor of the reports from the Credit Review Office is that there is no serious problem with lending to SMEs.

What can we expect when banks are required to remove €70bn+ from their lending totals as they delever?

Meh…in a bad recession, with businesses teetering on the edge, many of them will ask for inappropriate loans, when what they in fact need, is equity

Over 3,000 companies have gone bust in recent years leaving surviving SMEs to absorb bad debts at a time of depressed demand.

There is as much time spent chasing money these days as seeking new business.

John Trethowan, head of the Credit Review Office, says today: “It is all too easy to say ‘banks aren’t lending’, or to call for banks to ‘lend more’, however this takes little account of the ability of many borrowers to repay.

At present much bank lending is restructuring existing debts, and also allowing reductions of interest and/or capital on legacy loans to assist SMEs through the recession. Without such activity many more SMEs would have already ceased trading.”

Trethowan adds: “Banks now need to start using their capital to ‘save’ good SME’s, however it is my view that this will require some form of government initiative, as some of this lending will be beyond the prudent cashflow lending criteria now obligatory in banking and expected by the Regulator.

Whilst this will involve a contingent risk for the taxpayer in underwriting such lending, if the entry criteria to such a scheme establishes future viability the risk of default will be minimised.”

Some other snippets from the report:
“Loan applications that were treated favourably, meaning applications that
were fully or partially successful, came to 94% in 2007; the corresponding
figure for 2010 was 68%.”
So the headline figure of 50% refused is an exaggeration…

Reasons business want loans:
Maintain the business – 60.4
Grow domestic activies – 45.8
Finance export sales – 10.6
Develop international activites – 9.4
Finance innovation and R&D – 8.2
Mergers and acquisitions – 6.7
Other – 12.9

– Finance is a poor way to keep already indebted businesses going…

As to what factors will limit growth of enterprises:
Economic outlook – 89.8
Price competition – 60.5
Local/domestic markets – 53.7
High cost of labour – 49.3
Market competition – 47.0
Burdensome regulations – 33.4
Not enough financing – 25.4
Investment in equipment – 12.1
Foreign markets – 7.0
Technological competition – 5.2
Products getting outdated – 3.8
Availability of personnel – 2.8
Loss of existing personnel – 2.8
Access to information technology – 1.6
Do not see any constraints – 0.7

Finance needs comes seventh, behind burdensome regulation and well behind the cost of labour…

Perhaps a post titled “there’s too much regulation” and one titled “labour costs are still too high” might also lead from this?

The restriction in the flow of credit from domestic banks is among the major causes of the prolonged Irish recession – more important perhaps than the much-maligned (by Krugman) and very necessary austerity budgets.

@Gregory Connor
Credit to whom and for what?

I’d say that the absence of credit workout mechanisms (from IVAs up to a ‘sensible’ bankruptcy process) are at greater fault. Households are on aggregate up to their oxters in debt, but the picture changes when you look at who is most indebted – it is ‘prime’ consumers who are carrying a raft of lifestyle and mortgage debt, much of it foolishly given.

A second serious problem, related to the first, is the absence of a functioning property market. This is not just credit driven, government has set its face, along with the banks, against finding a clearing price. As a result of numerous bottoms and lines in the sand and only shows in town, confidence in future price declines has been reinforced, not reduced.

There are economic consequences for finding this market clearing price, but are they any more onerous than the current slow death?

@Karl, Zhou
The report doesn’t prove anything much about whether or not any real “Demand” for credit is being frustrated.

While it’s possible that there is a problem and that good businesses are not getting capital, it’s also true that struggling businesses will try to get their hands on any cash they can. But it doesn’t mean they should be given it, nor that any money they do get should be lent rather than invested.

As far as I can see, the data won’t let you tell which effect is most important. Even the fact that fewer companies are asking for finance in 2010 may be an indication of self-censoring…that they know they won’t be given credit so don’t even ask.

If we assume that the ICT sector is the one least impacted by the property collapse (a bold assumption), then the tables on page 6 might show that the impact of credit restriction is being felt in giving partial funding to good credit risks, rather than refusing entirely. Otherwise, a host of explanations could fit the data in the report.

Having heard an RTE report last year with a number of companies in household decoration retail complaining that they couldn’t get loans to “help the business survive”, I can’t help but fearing that the problem in Ireland is that there are many companies who are not good credit risks, and that they would be seen as such by any bank. I don’t doubt that other good companies are not getting loans that they probably should get, I just don’t believe this data tells me which is a bigger issue.

@Hugh Sheehy

All the data tells us is that the banks’ story about nobody looking for credit was a false story.

Apart from that, we all know that the banks are bust (or thereabouts) and that they are engaged in a process of massive deleveraging. Credit is of course tight and banks are not giving out money for every good project or business.

Spinning by the banks to the effect that they are living up to their social responsibility and making up to society (for their negligence and reckless destruction of the state) by extending as much credit as people reasonably ask for in order to spur a recovery DESPITE having their hands tied behind their backs and two broken legs is of course just spin.

Everybody Knows as Leonard Cohen says.

The data says that fewer companies – about a fifth less – are looking for loan finance in 2010 than in 2007. (Table 1). That’s not “nobody”, but it’s less. Also, considering that the data is in percent and there has been a terrible number of company failures, the overall number is down even more. Again, not “nobody”, but less.

Only one sector (ICT) shows as having a higher percentage of companies looking for finance in 2010 than in 2007 and their total rejection rate is only up a little.

As for spin…dunno. I’m just looking at the report.

> This seems to pretty definitively disprove the “weak demand”
> explanation for falling credit.

That’s unfounded banker bashing. I’m a credit officer myself and I can tell you that I don’t have much to do these days as there is just no demand for loans. And indeed, the few requests I get are from desperate, loss-making customers who are never going to repay their loans. The truth is that the good companies don’t want to borrow at the moment because they don’t want to invest or expand as there is no demand.

There are a few issues with this report. It compares the current situation to 2007. Since when is 2007 a benchmark? It was at the top of the bubble, difficult to argue that lending should be as reckless now than in 2007. And as already mentioned above there are no hard numbers in this report, only percentages. If a loan officer used to get 50 loan applications including 20 that were viable and if he now gets 5 including one that is viable, is it his fault?

We’re in trouble because banks were lending too much, you can’t criticize banks for lending less than in 2007, that’s just absurd.


Der Spiegel Online worth a read here – ….. strange stuff on EBS! Irish Central Bank, & ECB half a trillion headache ……

ECB’s Balance Sheet Contains Massive Risks
Asset-backed securities, bank bonds, etc & EBS!

By applying a great deal of pressure, ECB President Trichet made sure that the Europeans came to the Irish government’s aid so that Ireland was able to protect its banks from collapse. This spared the central bank the embarrassment of having to realize the precarious instruments among its asset-backed securities, which are based on real estate loans in County Longford and elsewhere.
But if the euro crisis rumbles on, the worst-case scenario isn’t all that far away. To ensure its national survival, Ireland should reject the European rescue effort and, instead, accept the failure of its banks as a necessary evil, Morgan Kelly recently said. The renowned professor of economics at University College Dublin knows who would be especially hard-hit by such a step: the ECB.
“The ECB can then learn the basic economic truth that if you lend €160 billion to insolvent banks backed by an insolvent state, you are no longer a creditor: you are the owner” Kelly wrote in the Irish Times earlier this month.,1518,764299,00.html#ref=nlint

@Credit Officer.

It is good to hear from somebody who has put their head up over the parapet and some of what you say is true. But it does not tell the full story of deleveraging.

Many SME businesses while continuing to struggle may have stabilised their businesses. They are however still being squeezed to pay the property losses of the owners.
The true idiocy of the current banking approach was perfectly illustrated by Maeve Dineen in yesterday’s Irish Independent. [Watch here for the solution offered by the banker]

How about the bicycle shop that borrowed a few years ago to diversify into rural tourism? Well actually, he didn’t quite invest in the rural bike trekking in the end — instead he bought an old warehouse and converted it into four apartments. True, the bike shop is still ticking over but the flats have been empty for 12 months and they are putting serious pressure on his finances. So, it’s a no again.

“He’ll have to lay off the few staff he has and try to offload the flats and come up with a recovery plan. That’s the only way he’ll save his bicycle shop,” the banker says as he shakes his head.

So a good bike shop that is ticking over has to lay off staff to deleverage a dud property loan. Good economics, eh?

And that is the real Ireland at present. The blood is being sucked out of business to pay the property debts. Its not just a question of new loans.
Link to Maeve Dineen article below.

This is an excellent statistical publication by the CSO. It provides stark evidence that if we do not solve the issues in relation to the banking sector, the real economy will not provide a significant growth stimulus. While our current export growth from the major multinationals is providing some bouyancy for GDP, real large scale employment increases are only going to be delivered from domestic enterprises. Very evident that credit constraints will provide a significant deterent to this.

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