Monday March 05 2012
THEY claim to be "open for business" and tell us they have met their lending targets, but the governor of the Central Bank last week confirmed what every Irish business person already knows: the banks are simply not lending.
And Patrick Honohan went even further by saying that credit conditions for Irish small and medium enterprises (SMEs) are worse than any other place in Europe, adding that "the lack of bank credit is likely to be a more serious drag on the recovery than it might otherwise be".
So just who are the banks trying to fool by persistently telling us they are lending? All we want is the truth but, once again, Irish banks stand accused of mistreating their customers.
Picking winners among entrepreneurs is notoriously difficult. Banks, of course, will claim that lending is muted because demand is subdued -- but that is not the only problem. SMEs are harder credit risks to assess than large ones, so they attract higher capital charges and are often the first to lose their funding in a downturn. The banks are also now focused on deleveraging their balance sheets and don't want to take on more risk. That all makes perfect sense, so why do they continue to lie to us about their lending levels?
On top of this, the few firms that are lent money must pay higher interest rates for new lending, compared with their euro-area counterparts -- and while it is also more difficult to get larger loans in Ireland, the collateral requirements are also higher.
Small business lobby groups will give you myriad examples of companies turned away. Banks only register formal proposals for loans, not those turned away at the first inquiry. Many firms are afraid that if they ask for loans, their overdraft will be turned into a new loan at extra cost.
And many businesses robust enough to survive the recession now see opportunities where competitors have gone bust, yet they're not able to borrow in order to grow.
Recently I spoke to a number of companies at a Small Firms Association event. All complained that bank managers have no local knowledge of lending to small businesses and were over-ridden by head office diktats wanting high short-term returns, with no risk.
One small business owner told me how he had to beg and borrow from friends and family to buy a packaging machine for his expanding company. Only after he had self-financed the deal, would the bank give him the loan.
But then the bank wouldn't release the money until one of the bank managers travelled the length of country to take a picture of the actual packaging machine.
The picture was shown to "head office" which only then agreed to release the money. The Government talks up the value of small enterprises and new start-ups -- but what happens on the ground looks very different from the figures presented to them by the banks.
The banks' official lending targets of €3bn are puny. But there is no way these official figures reflect real demand, as the banks duck and weave.
You have to wonder why the last government and this one approached banks with such extreme trepidation. Or why the public is not more outraged as people lose businesses and livelihoods.
It might suit this government to use shrinking the deficit as a cover for permanently shrinking the State. But the banks continue to lie to us and their lack of lending is stunting growth. That suits nobody.
And Patrick Honohan went even further by saying that credit conditions for Irish small and medium enterprises (SMEs) are worse than any other place in Europe, adding that "the lack of bank credit is likely to be a more serious drag on the recovery than it might otherwise be".
So just who are the banks trying to fool by persistently telling us they are lending? All we want is the truth but, once again, Irish banks stand accused of mistreating their customers.
Picking winners among entrepreneurs is notoriously difficult. Banks, of course, will claim that lending is muted because demand is subdued -- but that is not the only problem. SMEs are harder credit risks to assess than large ones, so they attract higher capital charges and are often the first to lose their funding in a downturn. The banks are also now focused on deleveraging their balance sheets and don't want to take on more risk. That all makes perfect sense, so why do they continue to lie to us about their lending levels?
On top of this, the few firms that are lent money must pay higher interest rates for new lending, compared with their euro-area counterparts -- and while it is also more difficult to get larger loans in Ireland, the collateral requirements are also higher.
Small business lobby groups will give you myriad examples of companies turned away. Banks only register formal proposals for loans, not those turned away at the first inquiry. Many firms are afraid that if they ask for loans, their overdraft will be turned into a new loan at extra cost.
And many businesses robust enough to survive the recession now see opportunities where competitors have gone bust, yet they're not able to borrow in order to grow.
Recently I spoke to a number of companies at a Small Firms Association event. All complained that bank managers have no local knowledge of lending to small businesses and were over-ridden by head office diktats wanting high short-term returns, with no risk.
One small business owner told me how he had to beg and borrow from friends and family to buy a packaging machine for his expanding company. Only after he had self-financed the deal, would the bank give him the loan.
But then the bank wouldn't release the money until one of the bank managers travelled the length of country to take a picture of the actual packaging machine.
The picture was shown to "head office" which only then agreed to release the money. The Government talks up the value of small enterprises and new start-ups -- but what happens on the ground looks very different from the figures presented to them by the banks.
The banks' official lending targets of €3bn are puny. But there is no way these official figures reflect real demand, as the banks duck and weave.
You have to wonder why the last government and this one approached banks with such extreme trepidation. Or why the public is not more outraged as people lose businesses and livelihoods.
It might suit this government to use shrinking the deficit as a cover for permanently shrinking the State. But the banks continue to lie to us and their lack of lending is stunting growth. That suits nobody.
- Maeve Dineen
Irish Independent
No comments:
Post a Comment