Members have been given a brief document summarising the main points. I will briefly put that in context and draw attention to some of its features.
The supply of credit to business is economically vital. There was a good deal of concern on the part of Government that many conflicting statements were being made and there was a desire to get a proper baseline, establish the facts and so on. That is what we set out to do.
Allied Irish Bank and Bank of Ireland agreed to take part in and fund the review as part of the recapitalisation deal announced in February. Some volunteer banks, Ulster Bank and National Irish Bank, joined in also. Bank of Scotland, unfortunately, was unable to take part but those three volunteers also made a financial contribution, which is worth recording.
We had a broadly representative steering committee and we benefited greatly from its input. The context, as members will see in the document provided, is that on the Central Bank figures business lending had been rising fairly rapidly for several years and the figure shown would be the total, including the larger corporate borrowers and so on. As members will see, that comes to a stop. It peaks in June 2008 but declines by approximately 2% overall. That is the context.
Overall lending has fallen a good deal but that fall is heavily concentrated in construction, real estate and a number of such sectors. We excluded those from this review because they would distort the picture. We believe we know what is happening in that regard but we were anxious to determine what is happening in the rest of the economy.
On the main features of the review, one of the features is our survey of SMEs. Many surveys have been done but this one is of a particularly high quality. It used a very large database, had a carefully constructed sample, asked factual questions and did telephone interviews with a great deal of care taken to ensure the right people answered the questions fully. That has been a particular feature of this report.
The overall outcome is quite complex. We can see that the stock of lending was steady over the period. That does not mean there was no lending going on. There is a constant turnover but the stock is staying the same. The demand for credit in quantity of money has gone down, although the number of people applying has gone down much less. That would suggest people are being a little cautious about what they are looking for, which is understandable.
The number of requests for credit, and this is on the banks' records, is 119,000, which is fairly large. One of the controversial features is that the banks' view of the number of applications they are refusing and the customers' view are quite different. That largely seems to centre around customers' perception of a fairly informal approach. The banks tend to be somewhat more formal in their approach than their customers and that makes up part of the gap in that respect.
As members will note from the report, the rates of refusal of credit are very varied in terms of a number of factors, namely, by the size of company, the sector the company is in and the bank that is lending. Members will also note the details in that respect in various parts of the report. From the sample of the files examined by the consultants, they found that, in general, the refusal seemed reasonable in the context of normal business criteria. That is an important point.
The type of credit people sought tended to be very much concentrated on working capital and similar types of finance. Some people are still seeking money for expansion and investment but, understandably, working capital has become the main credit sought.
Credit policy is another point on which there is a fairly considerable difference of opinion between the banks and their customers. At a formal level credit policies have not changed, but banks had a system of exceptions to policy and that has been very much tightened up. Members will note on page 40 of the report the customers' view is that on many occasions credit has been refused because in their view bank policy has changed. There is a difference of opinion on that aspect.
In regard to business conditions, the banks' loan books have deteriorated and many small and medium-sized enterprises report falls in turnover and in employment. We examined credit insurance in particular because, as the members may be aware, a problem arose earlier in the year about credit insurance. Forfás did considerable work on it. We were concerned that a difficulty in obtaining credit insurance might be a feature in preventing bank lending. It transpired that was true in only a small minority of cases. Surprisingly, given the fairly well documented difficulties in obtaining credit insurance, the alternatives the banks offered, the products one could use instead of credit insurance, were not much in demand and there was very little sign of much increase in demand for them. That was surprising.
In terms of recommendations, we believe that this issue is an important economic variable and we will need to tract it over the next year or two in a way we did not previously. We will work with the various stakeholders to put something together on that. We want something that is not a huge burden. We are not collecting statistics for the sake of doing so. We are conscious that there can be considerable costs in collecting data. We will try to come up with a good and practical method based on recommendations in the report. We will work that out with the stakeholders, including the Department of Enterprise, Trade and Employment. The report runs through international experience where governments have taken various actions to support business, business lending and so on. We will examine those in the future.
On the issue of the Government response to credit problems, I will mention briefly the guarantee scheme introduced last September, which has been crucial in protecting banks from loss of deposits. The recapitalisation of the banks has given them a good deal of leeway in allowing them to be in a position where they can lend. When the quality of a bank's loan book comes under pressure as economic circumstances change, it has to put aside more capital. That is an important consideration for the banks. As part of the recapitalisation of the banks, there are a number of specific commitments for the two recapitalised banks. The details for Anglo Irish Bank have not been finalised yet, but for Allied Irish Bank and Bank of Ireland, they are quite specific commitments and those are reported on quarterly to the Minister for Finance and those reports are checked by the regulator. With regard to the future, the aim of the National Asset Management Agency is to strengthen the banks' balance sheets and to create a situation where they are in a position to lend as needed.
