The Tyler Group: Lending to SME sector seen to grow in 2013

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Two main banks say demand is the principal factor

Recent credit approvals and releases for small and medium-sized companies are expected to be slightly up in 2013 in comparison to 2012, as reported by senior officials of AIB and Bank of Ireland.

However, both Gerry Prizeman, small business and agriculture top official at the Bank of Ireland, and John Irwin, who leads strategy and enablement of AIB’s business banking section, said the principal factor for lending to SMEs is demand for loans instead of the accessibility of funds.

The two reported at the release of a new newsletter of SME market events, the DKM/IBF SME Market Monitor, which reviews 15 published indicators for the sector to come out with an evaluation of prospective trends.

Introducing the report, Annette Hughes, DKM economic consultants Director, said local demand was crucial for the SME niche although it remained quite weak.

Proof of a rise in local demand — which includes consumer, investment and government disbursements — would propel the need for credit but “that remains to be seen”.

Although a few fresh inclinations have been heartening, including unemployment reduction and enhanced consumer and purchasing managers’ outlook, stable positive increase in local demand is not likely to occur soon.

Mr. Prizeman stated that whereas the decrease in the number of banks doing business in the Irish market would not aid the credit flow, the departing banks may have already been “emotionally absent” from the market and SMEs who were transferring their business to Bank of Ireland or AIB might face a more optimistic outlook when they start to transact with banks that are dedicated to the Irish market.

He stated that his bank approved loans of €3.6 billion in 2012 but that only €1.8 billion was availed of.

Mr. Irwin said that, in general, the quantity of capital out on credit to SMEs remains on the downtrend, which is not good for banks. Demand was the primary factor to be considered, he said.

Likewise, he mentioned that it was at times due to the fact that a creditable core business was maintaining real estate liabilities. Such conditions could be quite intricate; but they needed to be addressed for the general advantage of the economy. Several SMEs that claim they fail to get loan approvals in spite of running profitable companies fall under those conditions.