Credit Review has just published its 22nd report, covering the period 1 January 2021 to 31 December 2022.
The report provides a comprehensive overview of Credit Review’s activities and insight into the credit landscape, highlighting its commitment to transparency, accountability, and promoting fair lending practices for SME and farm businesses.
Origins of Credit Review
Credit Review was established in 2010 by the Minister for Finance to ensure the flow of credit to viable Irish businesses and farms. 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, Bank of Ireland, 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 Office 2022 Report
Business environment
Despite COVID-19, the war in Ukraine and Brexit, Irish SMEs have remained resilient, with low levels of business failures to date, low unemployment, and profits and revenues recovering to pre-pandemic levels, helped by the government pandemic support and the positive banking sector response.
Businesses during the COVID-19 lockdowns sought to conserve cash and reduce costs and expenditures, but this may have led to a lack of investment.
There are sectoral disparities, and government support may have been providing life support for weaker non-viable businesses.
SMEs seeking finance have fewer options due to the exit of Ulster Bank and KBC. Strategic Banking Corporation of Ireland (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-19 creditor legacy.
Credit Review recommends that banks provide written advice to borrowers on the future credit implications of restructuring decisions.
Banking overview and outlook
The Irish banking system has undergone a major upheaval in the last two years, with the exit of two banks from the market – Ulster and KBC.
Customers seeking to migrate from exiting banks with credit blemishes will find it difficult to get credit approval – the reduced number of banks operating in the Irish SME market makes it more difficult for business borrowers with credit challenges to refinance.
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 the non-performing loans/exposures ratio to three percent by 2023, which will require remaining banks to work with SME borrowers to restructure SME debt sustainably.
Monitoring bank lending
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.
SME demand for bank debt and expectations of future demand remains low, with just 17 percent of SMEs seeking credit in the last six months or expecting to borrow in the next six months.
See the full report on Creditreview.ie
This article is sponsored by Credit Review
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