Press release
Minister McGrath welcomes the 22nd Credit Review Report
Published on
Last updated on
Published on
Last updated on
The Minister for Finance Michael McGrath today welcomes the publication of the 22nd Credit Report, which covers the period 1 January 2021 to 31 December 2022. The report provides a comprehensive overview of Credit Review’s activities, accomplishments, and insights into the credit landscape, highlighting its commitment to transparency, accountability, and promoting fair lending practices for SME and farm businesses.
Among the highlights of Credit Review’s Report are:
Review of lending practices: The report presents an overview of bank lending practices observed through Credit Review’s direct interaction with borrowers and banks as part of its credit appeals process. The appeals consider the availability, affordability, and accessibility of credit; in addition, the report sheds light on potential issues and opportunities for improvement.
Impact on borrowers: The report emphasises the importance of fair treatment and clear communication with borrowers. It assesses the impact of lending practices on businesses and farms, focusing on topics such as loan affordability, customer support, and clear lending policies.
Recommendations and insights: Drawing on its expertise and extensive industry knowledge, Credit Review provides insightful recommendations and suggestions to improve lending practices and ensure viable businesses can access credit. These recommendations are designed to promote fair lending, responsible borrowing, and sustainable economic growth.
From its inception, Credit Review has supported businesses and farms through its appeals process, overturning bank credit refusals. This has resulted in the banks agreeing to provide credit of €77.4 million and helping to create/protect 5,162 jobs.
On the publication of the 22nd Credit Review Report, the Minister for Finance Michael McGrath stated:
“We are proud to present the Credit Review Report for 2022. This report reflects our commitment to transparency and ensuring a fair credit environment for SMEs.
"The insights and recommendations in this report aim to drive positive change, improve lending practices, and ultimately benefit SME borrowers and lenders alike."
The publication of the Report underscores Credit Review’s role as an independent body promoting fair lending practices and ensuring viable SME and farm borrowers access credit. It serves as a valuable resource for policymakers, financial institutions, regulators, and SMEs enabling them to make informed decisions and contribute to a more sustainable credit landscape.
To access the full Report and learn more about Credit Review, please visit the Credit Review website.
Credit Review was established by the Minister for Finance in 2010 to ensure viable businesses can access bank credit. Credit Review plays a crucial role in assessing lending practices, evaluating rejected credit applications, and ensuring transparency and accountability in the credit market. It aims to foster a balanced and responsible lending environment by providing expert insights, recommendations, and information to lenders, borrowers, and policy makers. By promoting fair treatment, responsible borrowing, and sustainable economic growth, Credit Review contributes to the overall stability and integrity of the financial sector in Ireland.
Credit Review was first established in 2010 by the Minister for Finance to ensure the flow of credit to viable Irish business. Its key function is to examine credit decisions for SME or farm borrowers who have had an application for credit of up to €3 million declined or reduced by participating banks (currently AIB, BOI, PTSB and Ulster Bank), and who feel that they have a viable business proposition and apply for a review. While Credit Review cannot instruct a participating institution to provide credit, most of the cases Credit Review has supported were approved credit.
In addition, Credit Review has monitored lending and provides market intelligence to the Minister for Finance by receiving monthly loan data from Banks; and observing lending behaviour and credit risk appetite by each Bank, through its work on Borrowers’ appeals.
Credit Review liaises with other government departments, State bodies, and trade bodies in identifying and proposing remedies for market failures in the SME/Farm Banking system and publishes a regular market commentary report.
Since its establishment to date, 1,275 formal applications have been made to Credit Review. 922 have reached conclusion.
Credit Review has upheld appeals in favour of 543 borrowers, including those with a commitment to reassess the lending in the future, if agreed performance hurdles are met in the short term. A further 46 were withdrawn and approved by the bank.
The upheld appeals have resulted in €77,410,317 credit being made available to SMEs and farms, helping to protect/create 5,162 jobs.
The report and previous reports are available on the Credit Review website.
The COVID-19 pandemic, Russian invasion of Ukraine, political uncertainty in the UK, and Brexit issues have all had a negative impact on Irish businesses. However, Irish SMEs have remained resilient, with low levels of business failures to date, low unemployment, and profits and revenues recovering to pre-pandemic levels.
Irish SME's faced challenging trading conditions but were better prepared for the COVID-19 crisis due to earlier Brexit preparations and low debt levels. With government pandemic supports and the positive banking sector response, most businesses are now recovering.
Businesses during the COVID-19 lockdowns sought to conserve cash and reduce costs and expenditure, but this may have led to a lack of investment. There are sectoral disparities and government supports may have been providing a life support for weaker non-viable businesses. SME's seeking finance have fewer options due to the exit of Ulster Bank and KBC. SBCI schemes have been successful, but eligibility criteria now have a narrower focus. Microfinance Ireland continues to support micro businesses with a cap on lending of €25,000. Formal restructuring mechanisms such as SCARP are welcomed.
Revenue's tax warehousing scheme has enabled many businesses to maintain a cash buffer, but repayments will commence in 2024. Credit Review expects debt restructuring and refinance requests to accelerate by year-end due to exiting banks and COVID creditor legacy. Banks should provide written advice to borrowers on the future credit implications of restructuring decisions.
The Irish Banking system has undergone major upheaval in the last two years, with the exit of two banks (Ulster and KBC) from the market. Non-bank alternative lenders have entered the market, but they typically do not provide the full financial services that many SMEs seek. Credit Unions have large surplus funds on deposit and a commitment to entering the SME credit market, but they will not fill the entire credit gap in the short term.
The remaining banks have geared up to facilitate the migration of over one million current and deposit accounts, but many SME’s will require credit in the form of overdrafts, guarantees and stocking loans. Customers seeking to migrate from exiting banks with credit blemishes will find it difficult to get credit approval. Ulster and KBC will likely sell challenged debt as part of a portfolio loan sale at the end of the exit process. Irish banks are targeting a reduction of Non-Performing Loans/Exposures ratio to 3% by 2023, which will require remaining banks to work with SME borrowers to restructure SME debt sustainably.
Credit Review has received monthly loan sanction figures from the three banks that continue to lend to Irish SMEs and farms. These figures show that the banks' loan books have stabilised after shrinking for most of the last decade. The expectation is that as the economy gets back on its feet, bank lending should grow, but growth could be hindered by increasing interest rates and increased economic uncertainty. To facilitate this expected growth, firms need to invest in fixed and other assets to boost output, mitigate against depreciation and enhance productivity. However, SME demand for bank debt and expectations of future demand remains low, with just 17% of SME’s seeking credit in the last 6 months or expecting to borrow in the next 6 months.
Delaying reinvestment in the business will negatively influence the overall productivity and competitiveness of Irish SME’s. The National Competitive and Productivity Council Competitiveness Scorecard 2023 has commented on the rising interest rate impact on business investment decisions. The Department of Finance Credit Demand Survey found that SMEs prefer to use internal funding for investment, which can lead to inefficient use of resources and tie up working capital. Access to credit for businesses with poor credit history is limited, and the reduced number of banks operating in the Irish SME market makes it more difficult for business borrowers with credit challenges to refinance.