Irish SME credit supply and demand: comparisons across surveys and countries

Economic Letter – Vol 2012, No 8
Irish SME credit supply and demand: comparisons across surveys and countries – Sarah Holton and Fergal McCann

20 replies on “Irish SME credit supply and demand: comparisons across surveys and countries”

If ‘jobs’, that great 4-letter word, are to emerge, they will emerge from the SME sector in the real economy.

This report is very welcome.

Another issue relates to the ‘skill-set’ of bankers themselves and how much they know about the various industrial sectors; I’m aware of some research which notes that such managers are not up-to-speed on real industrial issues after a decade binging on .. er .. property. Ireland is a million miles away from the close realationships between sme-banker that exists in Germany and northern Italy … in terms of indigenous industrial development these bankers are at best at the novice stage …. and what ever about the availability of credit, this represents yet another institutional weakness … these bankers need to go back to school so that they can deal competently with the real economy.

Working capital management in different countries?

The sooner customers pay the less the need for banks to finance working capital.

My experience is that in Ireland it took more time and effort to get paid than in many other countries that I’ve got experience with, that was even when times were good. From what I’ve heard it has gotten a lot worse.

Many SMEs use their receivables ledger as security for loans. If the receivables ledgers perform as I suspect they do (badly) then I’d be very reluctant to accept a receivables ledger as security.

I suppose debtor friendly systems can look good but if credit is seen as the lifeblood of a business then I’d rather do business in a creditor friendly system. My experience is that Ireland is a debtor friendly country.

Irish Times synopsis

DAN O’BRIEN, Economics Editor, and CIARA O’BRIEN

Irish banks second only to Greece for refusing loans
The Irish Banking Federation has rejected the findings of a Central Bank report that claims Ireland is second only to Greece in terms of refusing loans to small businesses.

The Central Bank report published this morning found that Irish banks reject more business loan applications than any other state in the euro zone except Greece, with small and medium businesses in Ireland twice as likely to have a loan application turned down as the average across the region.

the IBF have been all out over the place this morning basically crying foul on this data. are they right?

Well done to the two economists that tried to make sense of what is going on in the banks that we now own, for the most part.

I have no doubt that their analysis is more accurate than the usual :
‘But we are lending’ from the IBF spokesman. A spokesman whom we are all paying handsomely, through the banks that we now so that they can rebutt a report from the banking authority that controls them.

re the banks crying foul:
The old maxim is that ‘he who comes to equity must come with clean hands’

How difficult is it to produce two simple reports for loans by sector and by period that gives the following simple information:

Op Balance
New loans issued
Interest repaid.
Capital repaid
Reclassified (which should net to zero)
Closing balance.

Op Loan applications
New loan applications submitted:
Applications refused
New loans Approved
New loans released:
Closing Loan applications:

It is hardly rocket science and one suspects that it is basic and essential information required for running a bank. Even one that has already been run into the ground.


“the IBF have been all out over the place this morning basically crying foul on this data. are they right?”

Short answer: They are out crying foul because I told them to.

Long answer: Because with only one week left of my long absence from Ireland, the cheeky buggers thought it would be OK to call and offer money to do something for them. Eating in all the 2* restaurants out here in the south of France has unfortunately meant agreeing to take the filthy lucre.

We haven’t met. Hello. I’m PR Guy and I’ve been away for two months.

Just when people thought it was safe to get back in the water…..

I will be back on Irish soil next Tuesday and God help anyone who is slagging off my fianancial services clients 😉

It’s been almightily hot but I hear you guys had a bit of a washout summer.

The banks are deleveraging and they couldn’t care less about the SME sector. But who is overseeing the deleveraging?

Ireland is undergoing one of the largest deleveragings of any advanced economies of recent times. And people sound shocked that it’s difficult for businesses to get credit? Go figure.

However, that said, doesn’t a 75% approval rate, in the midst of some very weak economic data, actually sound reasonably ‘good’?

When one looks at the history of the ecnomic disaster that banks and government caused in Ireland, I think it’s worthwhile to look at “Dr” Con Power:

“It wasn’t just because it was one of the final political acts of Charlie McCreevy , but it may have been because he took up the watchdog role while also vice-chairman of the Irish Nationwide Building Society. The implication was that there was some conflict of interest – an implication Dr Power dismissed as “utterly ridiculous”.

As for calling himself a “Doctor”, Mr. Con Power seems to have had delusions of grandeur:

It’s either a feast or a famine and it’s not good news for young firms.

In the US, there has been a sharp fall in entrepreneurship since the late 1970s and as young firms (up to 5 years old), create most of the net new jobs in the economy – – older firms tend to expand by acquiring others and then shedding jobs — it’s a development that is reflected in the jobless figures.

Young firms with employees now account for just more than a third of all firms compared with 50% forty years ago, while the share of employment accounted for by entrepreneurial firms has fallen from 20% to 12%.

Data on an individual count of the self-employed is misleading as a metric of entrepreneurship. FedEx, the giant air freight company, for example, forced its truck drivers to become independent contractors. There are many more who are not really entrepreneurs because they are self-employed.

Startup funding has traditionally come from personal savings, credit cards, home equity and banks.

Another report this week on the lost decade for the screwed US middle class shows that stagnant earnings and falling home prices have removed two key areas of funding for startups.

As for banking, the decline in startup employer firms has coincided with banking deregulation and consolidation – – the number of banks in the United States has dropped by about one-half from the level of the mid-1980s.

There were other factors and the rise of Staples, the office supply firm, helped by Mitt Romney to grow from one store to 2,000 units, could be seen as having some benefit for the economy despite the closure of many small firms but that case is hard to make when the owners of capital take the lion’s share of the pie.

Bill Gross, the PIMCO bond fund manager, said last year:


It is obvious that “capital” as opposed to “labor” – – moving from 8 to 13% of GNI over the past three or even 30 years – – has been the cyclical and secular champion. Why one or the other should be policy and politically advantaged is not commonsensically clear. Granted, the return on capital as opposed to the return to labor should logically be higher if only to encourage savings.

But once an historical midpoint or range has been established, a relative equilibrium should be observed. Even conservatives must acknowledge that return on capital investment, and the liquid stocks and bonds that mimic it, are ultimately dependent on returns to labor in the form of jobs and real wage gains. If Main Street is unemployed and undercompensated, capital can only travel so far down Prosperity Road. 


+ 1

However, one would not want some blidingly obvious facts to get in the way of the latest controversy.

Ireland used to have alternatives to banks : once upon a time there was a building society sector. There used to be the ACC as well . There was a far more resilient financial ecosystem. AIB could blow up every 30 years but it wouldn’t take the country down with it. But they traded everything in for a property boom

It’s a bit like what happened to the mangroves in the tropics, really.


Of course the reality is that there is massive deleveraging, with consequent and inevitable restriction of established credit lines and refusal of new loans. One might reasonably suspect that the 75% success, if such there be, is some combination of ‘low risk’ rollovers and insider deals.

The point is that the bank recapitalisations were sold politically as the way to restart lending and economic growth. The leadership continues to parrot this fairytale, so what is really blindingly obvious is that our political system is as dysfunctional as our banking system.

As Seafoid rightly noted, globalisation has destroyed the domestic fnancial ecology, and with it, the prospects for domestic recovery.


To qualify slightly –

Of the 75%:

Irish firms pay higher loan interest rates, have access to lower loan amounts, and have more stringent collateral requirements than other countries.

Banks will struggle to hit loan targets


Bank of Ireland and Allied Irish Banks will struggle to reach Government- set targets to lend €3.5 billion each to small businesses this year, according to the head of the Credit Review Office, which adjudicates on appeals from companies rejected for new loans.

John Trethowan, head of the Credit Review Office, expected the banks to make up ground towards these goals in the remainder of the year but said that “it will stretch them” to reach these targets.

The chief executives of the two banks had rejected his call for them to do more to lend to businesses in marginal cases where loans were turned down, he said.

Mr Trethowan said he had met Bank of Ireland chief executive Richie Boucher and AIB chief executive David Duffy since calling on the two lenders in June to make more exceptions to approve new loans for viable small businesses

Bank of Ireland pre provision REturn on Assets is about 0.5% and falling. It would have to increase 3-4x to justify new business. Lending rates are still to low and funding costs are too high as are operating expenses.

@ Tull

BoI has staffing levels more appropriate to a bank that actually lends money (and during a boom). The interests of these people are put before those of the domestic economy.

But that is the story of the “recovery”.

I suspect tHe pillar banks have very few people who could lend money. Most of the economically useful staff take in deposits and run the payments system- core functions.
There are layers of managers, admin, fomer sales staff and your amount of people reporting to our vastly overstaffed regulator.

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