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Independent report on the demand for credit by Small and Medium Enterprises (SMEs) published by the Department of Finance

• Demand remains soft with 40% of SME’s surveyed seeking credit between October 2012 and March 2013

• 76% of application approved (74% in full & 2% partial)

• 77% of SMEs who were refused credit did not agree with the reason provided

• 6% of SMEs surveyed believe the banks are not lending

The independent survey on the demand for credit by SME’s in Ireland was published today (26 June 2013) covering the period October 2012 to March 2013. This survey was conducted by Red C and follows on from similar surveys covering the three previous six month periods. This survey is the most comprehensive survey of SME Credit Demand in Ireland, covering over 1,500 respondents and just under 5,000 direct calls to SME’s. The key conclusions of the survey are set out below.

Welcoming the report for the further clarity it brings to the pattern of credit demand by the important SME sector, the Minister for Finance, Michael Noonan TD said:

“The survey findings show that demand for Credit remains relatively soft with 40% of SME’s applying for credit in the last six month. Encouragingly, the survey finds that 74% of applications were approved in full. Any SME’s who require credit should approach the banks with viable business plans and, if refused, they should avail of the services of the Credit Review Office, which is overturning approximately 55% of cases referred to them.

The SME sector is a key driver of growth and jobs across the country and it is essential that SME owners and managers have the confidence in the economy to invest in their businesses. It is clear from the Survey results that SME’s decisions to apply for credit are intrinsically linked to the prevailing economic environment in which they are operating. Stability is returning to the economy and we are seeing signs in this survey of stability in SME’s turnover. That is why I placed such a strong focus on initiatives to support this sector in Budget 2013 and we will continue to work to support this sector in the months and years ahead.”

Key Conclusions of the Report

Demand for Credit

Credit demand from the SME sector remains low with 40% of SMEs having requested

at least one type of bank finance in the period October 2012 to March 2013. Demand has increased slightly from 39% in September 2012 and 38% a year ago, following the gradual stabilisation of business performance among SMEs in Ireland.

Changing perception that banks are lending to SMEs

A significant improvement is registered in the perception of whether banks are lending

to the SME sector. 47% now believe that the banks are indeed lending to SMEs –

this is up from 39% in September 2012.

Decisions on credit

Excluding pending applications, 76% of application requests were granted.

The overall decline rate is 19%, compared to the 23% decline rate recorded a year ago. An increasing proportion of applications are being approved fully, rather than partially approved.

Banks

77% of SMEs who were refused credit did not agree with the reason provided by the bank for the refusal.

21% of SMEs who were refused credit claim that the bank did not provide them with a reason for approval.

6% of SMEs surveyed did not apply for credit because they believe the banks are not lending.

Employment Trends

16% of companies surveyed indicated they had decreased employee numbers in the period, a fall of 4% from the same period last year.

Awareness of Credit Support

73% of SMEs were aware of the existence of the Credit Review Office, while 68% 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 two reviews covered the period April 2011- March 2012. A third review covered the six month period from April – September 2012. The review published today covers the period October 2012 to March 2013.

The review, carried out by Red C, 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 report is available on the Department of Finance website at wwwfinance.gov.ie .