Dept of Finance, credit demand survey – Nov 2012

Published by: Richard Colwell


The independent survey on the demand for credit by SME’s in Ireland was published today (28, November 2012) covering the period April to September 2012. This survey was conducted by RED C and follows on from similar surveys covering the two previous six month periods.
This survey is the most comprehensive survey of SME Credit Demand in Ireland covering over 1,500 respondents and over 5,000 direct calls to SME’s.
The overview of findings are shown below, with the full report available for download.
The results from this period’s Credit Demand Survey show demand remains relatively low, but are otherwise somewhat positive; with a small but increasing trend in demand, and a reducing decline rate from the banks. 

Despite this there are still issues to be addressed.  The pervading attitude among many SMEs remains that banks are not lending.  This is being driven by the fact that many of those that have been declined credit do not agree with the reasons given; while an increasing number claim not to have been given a reason at all. It is also the case that the time taken for processing credit applications remains long, and this can give the impression that banks are trying not to lend. The result of these influencing factors is that there are still a significant minority of SMEs claiming that have not applied for credit, simply because they believe the banks are not lending. 

With small signs of stabilisation apparent and better rates of approval among those applying for credit, it is vital that this perception is countered; something that could potentially be achieved by better working practices in order to encourage further applications and confidence in the banking sector.

Key Conclusions of the Report
Demand for Credit
39% of SMEs requested credit
61% did not request credit
Most demand was for cash flow and working capital purposes.

Reasons for not requesting credit
79% did not need it or have sufficient internal reserves/funds
6% thought or believe the banks are not lending

Decisions on credit
60% of credit applications were approved or partially approved
19% of credit applications were declined and
21% of credit applications are still pending.

When the pending applications are excluded, the approval rate is 76% and 24% declines.

78% of SMEs who were refused credit did not agree with the reason provided by the bank for the refusal.

In 69% of cases where formal applications were declined, the bank did not inform the borrower of the right to internal review.

Employment Trends
18% of companies surveyed indicated they had decreased employee numbers in the period, a fall of 2% from the previous survey.

Profit Trends
73% of enterprises reported they had made a profit or achieved a break even position in the six months to September 2012.

Awareness of Credit Support
77% of SMEs were aware of the existence of the Credit Review Office, while 65% were aware of the Code of Conduct for Business Lending to SMEs.

Background notes for editors
Bank of Ireland and AIB agreed in July 2011 to fund an independent review on credit demand by SMEs, which was commissioned by the Department of Finance following a public tender competition. The first review covered the period April-September 2011. A second review covered the six month period from October 2011 to March 2012. The review published today covers the period April to September 2012. The review was undertaken by Red C whereas the previous two were undertaken by Mazars. The Department held a tender competition in which Red C were successful this time round.
The review examined the demand for credit through a telephone survey covering over 1,500 businesses. The survey was of high quality, drew a carefully constructed sample from a large database of SMEs, made repeated calls to ensure a full response and asked factual questions. The full questionnaire is included in the report.
The full report is available for download below:-

Dept of Finance SME Credit Demand Survey Report – Apr-Sep 2012