Sometimes I despair at the public sector – compare the websites of two State bodies, the recently formed Credit Review Office and NAMA. News this morning from the Independent that the former body has received 20 applications in the past 6 months from business borrowers denied loans at the NAMA banks – 20 applications! NAMA of course just manages €40bn-odd of loans and assets, employs directly and indirectly 500 people and an army of third party firms and will run up €200m of operating expenditure this year. The former organisation’s target audience is small-scale businesses, the latter’s includes some of the world’s biggest property funds. No wonder some developers don’t want to be associated with the NAMA brand!
Putting aside the fact that NAMA’s website looks like it was designed and coded by senior infants, there appears to be one glint of brightness with the news that the Credit Review Office (CRO) has received only 20 applications since it was set up in March 2010 from small and medium sized businesses, including sole traders and farmers, who have been denied loans at NAMA Participating Institutions (PIs – AIB, Anglo, BoI, EBS and INBS). On the face of it, this would seem to indicate that small and medium sized enterprises (SMEs) are finding it easier to access credit.
What reinforces the feeling that credit conditions for SMEs are improving was the report yesterday from the Irish Small and Medium Enterprises Association Limited (ISME) that confirms that credit is more forthcoming (though it must be said that the improvement is marginal). ISME which claims to have 8,500 members polls members quarterly and in its latest report published yesterday, claims that
(1) 42% of companies who applied for funding in the last three months were refused credit by their banks, compared to 55% in the previous quarter (though compared with 42% in October 2009.
(2) 25% of respondents had requests/demands for a change in their banking facilities, down from a consistent 32% in the three previous quarters.
(3) 83% of firms outlined that the banks are making it more difficult for SMEs to access finance which represents a consistent 1-2% increase each quarter since October 2009
The CRO was set up pursuant to section 210 of the NAMA Act. Whilst we are in the middle of the NAMA process, it is worth stepping back to see the woods from the trees. NAMA exists to cleanse banks of a class of loans which have particularly suffered with the Irish property crash and to replace those loans with cash-exchangeable NAMA bonds which could then be used to lend to viable homes and businesses in the State. That is the NAMA principle. Subsequent to the passing of the Act, the government set up the CRO (there is a very helpful explanation of the role of the CRO from the Department of Finance here). In addition to the commitments encapsulated in the NAMA Act the government has made a commitment to make €3bn apiece available through Bank of Ireland and AIB to SMEs each year in both 2010 and 2011.
Now it should be said that lending to business generally has shown a marked decline – the latest from the Central Bank which covers the period to the end of May 2010 shows a worrying contraction in lending to non-financial businesses with overall outstanding lending to non-financial corporations down nearly 20% in just five months from January 2010 to May 2010.
So it would seem that businesses overall are accessing less credit than previously but that applications for credit for viable businesses is improving. The disharmony between the two is presumably the result of the economy continuing to contract. So possibly a victory for NAMA in the sense that credit is finally coming through for viable businesses but a Pyrrhic victory in the sense that there are fewer viable businesses out there seeking credit.
