I thank the Chairman and committee members for giving me the opportunity to be here today. The focus in recent times has been on the SME sector, but I thought it important to widen things out and talk about the extent of credit support generally to businesses in Ireland. The figures in the first slide of our presentation are from the Central Bank and they show that in the last few years, there has been a steady and substantial increase in the total amount of credit advanced by banks to businesses. It has been divided out over five years. In 2009, the total amount of credit given to businesses amounts to €160 billion. This includes agribusiness and the agricultural sector generally.
The value of credit fell in 2009, but is still much higher than the amount provided in 2006 and almost the same as 2007. I make that point because if we look at the economy, it has shrunk back to below 2006 levels. Therefore, I would contend that the level of business credit out there is still, in relative terms, equal to the level of economic activity.
The next slide is about what we do to support businesses in general. There is €84 billion worth of credit provided to the real economy business sectors, of which €32 billion is provided to the SME sector alone. Of that amount, €5.3 billion goes to agriculture, fishing and forestry, €11 billion goes to the hotel and hospitality sector, over €7 billion goes to manufacturing and nearly €13 billion goes to wholesale and retail trade and repair businesses. The source of these statistics is the Central Bank. We have excluded sectors such as speculative and development construction and speculative investment, as well as non-bank lenders and funds.
We are very committed to supporting viable and sustainable businesses through these challenging times. We should bear in mind that GNP is down by 3.5% in 2008 and nearly 11% in 2009 and since the downturn began, the aggregate decline in GNP is closer to 20%. Retail sales are down 4.5% in 2008 and 18% in 2009. Overseas visitors to Ireland are down by 21%, while the cash flow of 64% of businesses is affected by late payments, according to statistics from the SFA. These are the issues that are challenging businesses at the moment, and it is in that environment that the sector continues to lend to SMEs. Looking ahead, the OECD has forecast growth in 2011 of 3%, while the same body has forecast that exports in 2010 will increase by 3.7% and in 2011 by a very healthy 5.2%.
We know that the times are very challenging for SMEs. They face a sharp decline in domestic demand, while at the same time they are struggling to get paid. That is having a very direct impact on our cash flow and that is the lifeblood of any business. If they do not have cash, they will not be able to continue to function. According to reports from Mazars, one third of SME customers are struggling with loan repayments. Under different classifications, they are breaching their loan covenants and are struggling to service the level of debt in their business or that they owe to banks. I would like to think that we are still helping in that very difficult environment, and we also have to be mindful that the money has to be there to support businesses now, hopefully as we get into a situation where growth picks up again.
Around €5 billion was provided by banks in new SME funding in 2009. This money was provided for a variety of purposes. Much of it went towards working capital requirements, because this is the area where businesses will have the greatest level of stress. Money also went into start ups, because these are critically important to replenish the job losses that are occurring elsewhere in the economy. A very important channel is available from the European Investment Bank, and €300 million was made available by that agency to the banks in 2009. Almost all of that money has been committed. It is hoped that further substantial funding will be sought from the same source before the year is out.
The banks themselves are supporting the viable SMEs that are in difficulty. In many cases they are working with firms to restructure debt. They are giving businesses the breathing space to return to profit. Much forbearance is being shown. In some cases, customers may be fully drawn on their overdrafts and it may be more suitable to convert that debt into a term debt because it is cheaper for them. These measures are expensive for banks as they use up scarce capital, but the focus continues to be on supporting businesses in these categories.
There have also been a number of publicly announced schemes. One particular bank has announced a small business recovery scheme involving €500 million worth of funds, and it has directly targeted businesses that are currently very stressed and would not qualify for support under normal lending criteria. One other bank has set up an additional support fund of €250 million, while a third bank has put together a package on all island basis valued at €1 billion. Many non-financial, advisory and mentoring services are also being provided, and I would encourage SME owners to talk to their professional advisers when reassessing their finances and business models. If they need to adopt to a changed market, then apart from looking at pricing and costs, they also need to engage at an early stage with their lender with the various agencies providing support. They will find that such support is available.
In terms of the Government's recapitalisation programme certain agreements were made with those banks, and banks outside the programme have also committed themselves. Taking the totality of the commitment that all the banks have made for this year and next, there will be at least €14 billion in small and medium enterprises, SME, funding available for new or increased credit facilities. Those figures have not yet been bottomed out or finalised and members will have read in the media that discussions are ongoing between the Department of Finance and some of the banks concerned about those lending plans. It is more about detail than quantum of money, although the money has been committed.
In addition, there is independent oversight and a statutory code of conduct for business lending to small and medium enterprises. This applies to all banks in dealing with small and medium enterprises and aims to provide reassurance and independent oversight to SME customers in dealing with banks on a number of dimensions. First, it facilitates access to credit for sustainable business propositions; it is designed to promote fairness and transparency in the treatment of SMEs; and it looks to assist borrowers when dealing with arrears cases. I have already referred to the fact that many businesses have to restructure their facilities, which this is designed to deal with.
I note that for various reasons representatives of the credit review office could not be here but that office was recently established and provides a second leg of reassurance and oversight to the process. The office has been set up under Mr. John Trethowan and is tasked with first looking at trends within the banks in terms of lending to the SME sector, reviewing practice and considering decisions made by banks in cases where they may refuse or reduce credit. The people involved have the right to go to the independent credit review office to have that decision independently assessed and reviewed. Part of the SME lending code tasks each bank, where it makes a refusal, to specifically notify the customer of the existence of the credit review office, its remit and the right to make a direct complaint or appeal to the office.
New loan demand has declined in line with the overall decline in economic activity. Credit demand from SMEs has declined steadily since April 2007. There is much negativity and I would be very sorry if an SME succumbed to such negativity or took it that banks should not be approached because of the negative comment. The SMEs should approach a lender and follow through on applications. They should ensure there is a paper trail because we have heard some comments to the effect that somebody made an informal inquiry but was told not to pursue it. The application should be put in writing so there is a record.
The right information should be given so that lenders can make the right lending decisions. Sometimes credit applications may not have the full amount of information required and in the process there might be a delay while further information is sought. The more quickly people can assemble information and know what is required, the sooner an application can be turned around with a decision made.
If an applicant is unsuccessful, I would unambiguously and vigorously advocate that people use the credit review office process and the SME code on lending for small business if the applicant believes the process has not been followed, that he or she has been unfairly treated or if the application has not been handled in a transparent and open fashion. I have no hesitation in saying that. A bank's internal appeal system can be used, which all banks make available to customers. A group of senior personnel in the bank, independent from the original lending decision, would assess the case anew and determine whether the first decision was correct or should be amended. Beyond that people can go to the credit review office. Every person who is declined credit will be informed by the bank of his or her absolute right to appeal to that office.
In addition, we are engaged with several Departments and agencies on behalf of the sector and the sector itself has been directly engaged. We have regular meetings with the Department of Enterprise, Trade, and Innovation, the Department of Agriculture, Fisheries and Food and the Department of Finance. We meet representatives from Enterprise Ireland regularly in trying to develop banking expertise and services to support modern growth sectors in the economy. There is much start-up activity in technology, life sciences and around the green agenda. On behalf of the sector we are committing to engage with Enterprise Ireland and the people developing business in these areas to understand businesses and funding needs better.
We facilitated an independent review of SME lending, which was directly requested by the Minister for Finance; the witnesses from Mazars will speak about that more directly. We are also co-operating with the Central Bank, which intends to develop its own data collection series, and this will be launched quite shortly. We have ongoing direct engagement with SMEs and other organisations representing other sectors of the economy. We participate in the Department of Enterprise, Trade and Innovation's credit supply clearing group and all the subgroups.
As a representative body we have made a number of practical actions in addition to what has been done by member banks. We have been challenged, correctly, that we must improve information and promote better understanding across the SME and other sectors about how to interact with a bank and gain access to credit. We have published information disseminated through the web and in print across branch networks. We explain how the credit rating process works and the impact of Basel II, which is affecting a bank's capital requirements, and the effects on business customers. We have a check-list for applicants in the hotel sector in particular because that was sought by the sector. We have also done a similar list for farm business and developed an IBF business switching account code, making it easier and more straightforward for businesses to switch current accounts between banks if they choose to change their banking relationship.
Sustainable businesses are being supported by banks through these very challenging times and I do not under estimate the difficulties and challenges facing SMEs. To support economic recovery there is a minimum of €14 billion in funding being committed over the next couple of years across the banking system in additional funds. There is an independent oversight and review system in place and I am sure that not far in the future the committee will hear directly from the credit review office and the Financial Regulator on the results of their reviews and oversight.
We need to restore the confidence of SMEs in the lending process and I know that because of publicity, some SMEs may not go near their bank because it is thought credit will not be forthcoming. That is a bad decision as a person never knows until the question is asked. We have all the other safeguards in place and there are several processes of review, even if a decision is adverse in the first instance. I encourage viable SMEs who need credit to apply to their bank.