Review of Lending to SMEs Final Report March

Transcription

Review of Lending to SMEs
Final Report
March - September 2009
Table of Contents
Page
Introduction
1 Summary
5 Section 1 Approach Adopted
11 Section 2 Demand for Credit from SME’s
17 Section 3 Supply of Credit
35 Appendices
Appendix I
61 Demand Survey Questionnaire Used
Appendix II Data Definitions
Appendix III Assumptions & Limitations
I
ntroduction
Introduction
Background
Customer Size
In June 2009, Mazars prepared a report on SME Lending (the Mazars
This Review was conducted on the basis of companies falling into one
Review involving lending to SMEs across five banks. This Review was
category, which can be broadly summarised as follows:
of three categories of SME, as determined by the EU definition of each
Report) which was published by the Department of Finance following a
required under the Bank Recapitalisation Programme (February 2009),
in order to determine the actual position in relation to the availability
of credit to SMEs in Ireland and to recommend appropriate actions to
Micro
improve credit availability, taking account of the terms of the Credit
Small
Institutions (Financial Support) Scheme 2008.
Medium
The current report is being produced as a follow up to the June 2009
Employees
Turnover
Balance Sheet
<=10
<=€2million
<=€2million
<=50
<=250
<=€10million
<=€50million
Value
<=€10million
<=€43million
report and seeks to determine the actual position in relation to lending
Analysis of the Demand for Credit
analysis of both the demand for and supply of credit to SMEs.
statistically representative sample of Irish SMEs in October 2009.
The examination of demand for credit was conducted in October 2009
questionnaire prepared by Mazars and set out in Appendix I to this
examination of the supply of credit was conducted in November2009
MRBI (formerly TNS MRBI) in conjunction with Mazars, and the results
This involved an independent and comprehensive study of a
to SMEs in Ireland in the period March to September 2009 based on an
Individual SMEs were asked a series of questions, based on a
focusing on the period March 2009 to September 2009 and the
Report. This study was conducted by a third party specialist firm Ipsos
focusing on the same 7 month period.
of the analysis of the responses provided by SMEs are set out in
Scope
Analysis of the Supply of Credit
Section 2 of this Report.
A study of the supply of credit amongst the five banks participating in
the Review was conducted by means of a detailed analysis and review
The scope of the September 2009 report included the following:
of information and data held by each of the five participating banks
over the period March to September 2009 as detailed in Section 3 of
this Report.
2
Introduction
Credit Products
•
The Review was limited to the following credit products as set out in
•
Bank of Ireland (BOI)
Ulster Bank (UB)
the Code of Conduct for Business Lending to Small and Medium
•
Anglo Irish Bank (Anglo)
Enterprises, issued by the Financial Regulator in February 2009:
•
National Irish Bank (NIB)
•
•
Loans
Terms loans (often loans and term loans are grouped together and
A number of additional banks have indicated their willingness to
are not separately distinguishable)
•
•
•
•
•
participate in future quarterly reports
Overdrafts
Invoice discounting
Data Elements
Leasing
As in the June 2009 report, this Report includes an analysis of the
Hire purchase (often part of leasing).
following:
Any products that make use of credit insurance e.g. supply line
•
credit product, not specified in the Code of Conduct, have also
•
Credit applications
been included in the Review.
•
Approvals/ declines
•
The initial Review, published in June 2009, also included an analysis of
•
the following, none of which have been examined in this Review:
•
•
•
•
Credit policy and its application
Overdrafts limits v utilisation
Credit quality
The following additional data elements have also been introduced in
Credit pricing and its application
the current Report:
Changes in bank lending including terms and conditions of credit,
•
Drawdowns
Flow back of credit
security, repayment terms, credit insurance and rates charged
•
for credit.
Reclassification
The reasonableness or otherwise of refusals by banks of requests
This Report, which covers the period March to September 2009,
involved a more in-depth analysis of SME lending by participating
Participating Banks
banks than that represented in the June 2009 SME Lending Report.
The following five banks who participated in the initial Mazars Report
(June 2009) are included in the current report:
•
Exposure
Additional
information
obtained
has
resulted
in
the
technical
reclassification of lending in a small number of instances. This lending
Allied Irish Banks (AIB)
3
Introduction
had been previously included as SME lending under the terms of this
Our work was specific in scope and nature and was based solely on the
revisions in both the product category and sectoral exposure figures.
of a data return by the five banks who participated in the Review,
Review and has been reclassified in this Report. This has led to
review of information and analysis of data provided to us in the form
The overall impact has been to restate the value of lending to SMEs by
together with an independent study we conducted of the demand for
some €818.5 million but overall trends in lending in this and the
credit.
earlier report are unaffected.
We have relied on assurances provided by individual banks as to the
Future Quarterly Returns
completeness and accuracy of the data and information provided to
The 5 participating banks in conjunction with Mazars and the Irish
individual banks without having sought to validate these with
us. Furthermore, we have relied on explanations given to us by
independent sources in all cases.
Banking Federation have agreed to report on lending to SMEs on a
quarterly basis. The basis of this reporting will be similar to the
information presented in this Report, and over time, and if it is
Mazars assumes no responsibility in respect of, or, arising out of, or in
possible to do so, may also include additional information on credit
connection with this document.
supply, interest rates and conditions.
In addition it is proposed that an additional number of banks will
participate in future Reviews
Mazars
December 2009
4
S
ummary
Summary
The following is a summary of the main points arising from the Review of lending to SME’s, covering the period March 2009 – September 2009:
Similar to the June Review, this Review was conducted in two parts; an examination of the demand for credit amongst SMEs, conducted by means of a
comprehensive survey of Irish SMEs across all sizes of company and sectors in the economy and an examination of the supply of credit by the banks,
conducted by means of the analysis of a data return provided by the five banks who participated in the Review, and some limited testing of internal
bank credit systems and data returned.
The examination of demand for credit was conducted in October 2009 focusing on the period March 2009 to September 2009 and the examination
of the supply of credit was conducted in November 2009 focusing on the same 7 month period.
Demand Side Highlights
46% of survey respondents made one or more requests for credit in the 7 months to September 2009, representing a reduction in the demand for
credit in the period of approximately 6 percentage points when compared to the previous demand survey included in the June 2009 SME Lending
Report. Of those requests for credit 79% of applicants made a formal request (defined as filling out formal application form which is assessed
internally by the bank).
Only 11% of respondents indicated that they had requested or applied for a form of non bank finance
The most common reasons for requests for new credit, amongst demand survey respondents, were for working capital/cash flow reasons, to address
declines in business revenues and to support a slowdown in debtor collection. The most requested products were loans, followed by increased
overdrafts, leasing/hire purchase products and new overdrafts
6
Summary
Survey responses indicated that SMEs continue to operate in difficult trading conditions in the 7 months to September 2009. 78% of respondents
reported a continued decrease in turnover with 45% experiencing a decrease in turnover of 20% or more. A levelling off in the rate of decline in
employee numbers is apparent in the 7 months covered by this Report.
The most common reasons for decline cited by respondents to the demand survey were ‘change in bank lending policy’ as was the case in the June
2009 demand survey, however it is important to note that on this occasion ‘decline in business performance’ was now recognised by applicants as
one of the main reasons behind the decline of an application for credit (16%), this represents a substantial movement in the 7 months to September
2009.
Of those who were successful in their request for credit 13% did not (either wholly on in part) avail of those facilities, primarily to the fact they did not
need it at that time.
Supply Side Highlights
Total lending to the SME sector, as ascertained by the supply side review, has decreased from €33.6 billion in February 2009 to €32.7 billion in
September 2009 or by 2.6%. Total SME lending excludes lending to development and speculative construction, speculative real estate and certain
other non relevant subsector as outlined in Section 3 below.
The number of formal applications for credit received by the participating banks continued to decrease in the current review period. In the prior
period the volume of formal applications decreased by 11%. In the current period the volume decreased by a further 23%.
In value terms formal applications received by the participating banks decreased by 42% in the prior review period, followed by a decrease of 27% in
the current review period. This indicates that participating banks are experiencing a continued decrease in demand for new credit
7
Summary
The quality of the SME loan book as measured by bank credit grading systems deteriorated significantly in the period under review. In June 2008 15%
of lending (in value terms) was contained in the ‘Watchlist’ or ‘Impaired’ categories i.e. customers who are operating in excess of their repayment
obligations. In February 2009 the percentage had increased to 22% and by September 2009 it had increased further to 32%.
This indicates that at September 2009 approximately one third of total SME customers represented by participating banks are operating in excess of
their repayment obligations.
A review of the average utilisation of approved overdraft limits across the participating banks shows that 48% (or €2.6 billion) of approved overdraft
limits were on average unutilised throughout the period to September 2009. In the prior review period on average 51% (or €3 billion) of approved
overdraft limits were unutilised.
In the period March 2009 to September 2009, an amount of €2.6 billion was drawn down by customers of the participating banks against approved
Loan and Finance & Leasing facilities. This is the first period for which we are reporting on drawdowns and as such no comparison is available.
The average flowback rate for the seven month period covered by this Review was 10.7%. This equates to an annual flowback rate of 18.3%. At this
rate, the repayment term for total lending to SMEs would be almost 5.5 years. This varies substantially amongst individual participating banks.
Flowback is being reported from the perspective of Loans and Finance & Leasing only (as Overdrafts and Invoice Discounting products whereby
customers operate on a limit basis do not lend themselves to this type of analysis)
8
Summary
Decline Rate Analysis
The decline rate associated with SME lending can be examined from two distinct perspectives:
•
•
The demand side – i.e. the decline rate derived from an analysis of responses to a customer survey conducts as part of this Review
The supply side – i.e. the decline rate derived from an analysis of data supplied by participating banks
A significant difference is apparent between both decline rates.
Demand Side
The rate of decline of applications for credit reported by SMEs (based on the demand survey) was 28% across all requests, an increase of
approximately 4 percentage points on the June 2009 survey. The decline rate across banks representing the significant majority of applications varied
with a range of 17% to 30% with the remainder outside that range.
Micro companies reported the highest level of decline at 31%. It should also be noted that the decline rate on requests for non bank finance was 31%
It is likely that some level of overstatement is inherent in the demand decline rate, however given the fact that only two such surveys have been
conducted to date, and as such significantly less data exists than on the supply side, it is not possible to quantify the extent of that overstatement as
of yet.
Supply Side
If the decline rate is calculated using a consistent approach, to that used in the June 2009 report, and on the basis of the data currently held in the
participating banks systems, a rate of 13.6% is apparent (14% June 2009 Report).
This represents a difference of some 14 percentage points between the decline rate reported by customers based on the demand survey and the
decline rate recorded by banks based on the data currently held in their systems (supply side)
9
Summary
Comparative Analysis
The difference in the demand and supply decline rates would primarily appear to arise as a result of
•
•
•
•
•
A difference in perception as to what constitutes an application for credit amongst customers and banks
Differences in when and how credit applications are recorded on participating banks’ systems
Certain limitations associated with the use of telephone surveys such as those used on the demand side
The fact that informal requests for credit or enquiries are not in all cases recorded by participating banks
The fact that processes used in participating banks for the recording of credit applications and declines are not the same across all banks.
However the processes used by each bank are consistent with those they used in the period covered by the June 2009 SME Lending report.
•
The fact that the demand survey is based on all banks participating in the Irish market, whereas on the supply side, the data is based on the five
banks participating in this Review only, although this is not likely to have a material effect on the decline rate
On the basis of these differences and following our analysis of bank records, it is our opinion that the impact of these limitations in bank systems
and processes is to understate the overall supply side decline rate.
As such and in order to address this difference, we have performed an additional level of work in order to determine the quantum of this
understatement. This work involved:
•
•
•
The analysis of the variances in the range of credit decline rates across application classes and sectors
An assessment of the impact of the adjustment of decline rates for anomalies apparent in data received
The reworking of credit application and decline rates based on this analysis for a portion of credit applications
On the basis of the additional work which we have performed, and given the limitations inherent in bank systems and processes as outlined above, it
is our opinion that a decline rate of approximately 18 % in this and the prior period may be more representative.
The participating banks are attempting to address the limitations in their credit application systems and processes and we understand will do so over
time. However it is unlikely that it will be possible to ever completely address the limitations associated with credit application processes and systems
and in particular to fully record informal requests for credit. This is outlined further in Section 3 below.
10
1
Approach Adopted
Approach Adopted
This review of SME lending was conducted as a follow on exercise to
demand survey was conducted by a third party specialist firm – Ipsos
the review conducted in June 2009 which sought to determine the
MRBI (formerly TNS MRBI) in the period October 2009.
actual position in relation to the availability of credit to SMEs in Ireland
and to recommend appropriate actions to improve credit availability,
The requirement to conduct a separate demand study was based on
Support) Scheme 2008.
on the following specific limitations:
taking account of the terms of the Credit Institutions (Financial
our assessment of the data captured or held by individual banks and
This review, as its predecessor was conducted in two distinct parts as
•
follows:
•
requests for credit are generally not maintained by the banks. We
have been able to analyse formal credit details or applications that
Review of demand for credit from SMEs: this was conducted by
are entered on to the credit systems of the participating banks only
means of an independent and comprehensive study of a large
sample of Irish SMEs in October 2009 as detailed in Section 2 of
•
Whilst there are some limited exceptions, records of enquiries or
•
It would appear in most cases that enquiries for credit from SMEs
this Report
are initially assessed informally by the relationship, lending or
Review of supply of credit: this was conducted by means of the
as to the merits or otherwise of the credit proposal. Using their
detailed
analysis
and
review
of
information
provided
branch manager in each bank. These managers form an initial view
by
experience of the lending process and the client’s background, the
participating banks in the form of a data return and the
manager responsible advises as to whether the enquiry is suitable
subsequent analysis and testing of this data where possible. The
to proceed to formal application stage
data return was prepared on the basis of the period March to
September 2009 as detailed in Section 3 of this Report.
•
As such formal applications for credit cannot be considered as a
comprehensive estimate of full demand for credit.
In order to address these deficiencies, the survey assessed the demand
1.1 Review of Demand for Credit
for credit from Irish SMEs across all products and sectors included in
scope of the Review. The survey was conducted on the basis of 6,220
In order to address the limitations associated with credit demand
discrete telephone calls made to individual companies categorised as
information available through individual bank systems, a separate
SMEs. 1,052 completed questionnaires resulted from these phone
calls.
12
Approach Adopted
A number of calls were made to individual SMEs to ensure that the
The data elements provided in data return were as follows:
only 403 refusals to participate in the study and only 114 quota fails
•
correct person completed each part of the questionnaire. There were
(i.e. where companies took part but could not qualify for the survey
Exposure - the volume and value of credit activity with SMEs as
represented by the level of credit extended to SMEs and across
because the quota for the sector in which they were trading had
sectors and products (i.e. outstanding credit)
already been reached).
•
The data arising from this survey was reviewed and in turn analysed by
New Credit Applications - the level and value of formal application
for new/increased credit across products and sectors
Mazars, the results of this analysis and the detailed technical approach
to the survey, are set out in Section 2 of this Report.
•
Approvals and Declines – the level and value of positive and
negative responses to requests for credit across the sector as a
whole and individual product and sectoral groupings
1.2 Review of Supply of Credit
•
Drawdowns – the value that customers have drawn against
approved credit limits in the period of the Review (loans and
Our review of the supply of credit to SMEs is based on the analysis of
finance and leasing only)
the data submitted by each individual bank in the form of a data
return, covering the period March to September 2009.
•
Overdraft Utilisation Levels – the extent to which approved
overdrafts limits have been used by customers
In the case of most of the participating banks, this return was then
reviewed by Mazars on site, to determine the consistency of the
•
methodology used in the collation and presentation of the data
Flowback – the percentage of total lending which is being repaid
on an ongoing basis is referred to as Flowback. (loans and finance
returned where possible. Our review incorporated a limited analysis of
and leasing only)
data held by the individual banks in their lending and credit systems
together with some high level testing. Data analysis and testing was
•
not however possible in the case of all participating banks or in the
Credit Quality – the value of individual customers whose accounts
have been classified as performing, watchlist (i.e. accounts which
case of all the categories of lending data provided
are 30 to 90 days in excess of their repayment obligations) or
impaired (accounts which are more than 90 days in excess of their
repayment obligations)
13
Approach Adopted
Limitations
•
Applications
for
loans
and
overdrafts
which
represent
approximately 85% of total applications cannot be split in most
Our review incorporated the analysis of data held by individual banks
banks, and as such our analysis has required us to consider both
encountered in the analysis of lending to SMEs and the assumptions
reliance by SMEs on overdrafts as a form of working capital finance
in
their
lending
and
credit
systems.
The
detailed
as one credit facility. This is of particular importance given the
limitations
which we were required to make are set out in Appendix III to this
•
Report. The principal limitations are as follows:
•
•
systems, it is not possible to analyse formal applications fully. We
Records of enquiries for credit are generally not maintained by
could not split applications received by the banks into those
review period, we were unable to secure any meaningful analysis
customers. Therefore we have been obliged to conduct our
the banks. This is changing at present in some banks, but for the
received from new customers and those received from existing
of credit enquiries
analysis on a total new applications basis
•
It would appear in most cases that enquiries for credit from SMEs
branch manager in each bank. These managers form an initial view
•
as to the merits or otherwise of the credit proposal. Using their
It is not possible to comment on trends in credit applications
experience of the lending process and the client’s background, the
arising from renewals and amendments to existing loan and
to proceed to formal application stage
identifiable in most banks. Our analysis of loans and overdrafts is
In some cases credit applications are not recorded in full on
from existing and new customers
overdraft facilities due to the fact that they are not separately
manager responsible advises as to whether the enquiry is suitable
therefore focused on applications for new and increased credit
systems until such time as a lending decision has been made
•
Only paper based systems were in place for some products in
certain banks during the period of the Review
are initially assessed informally by the relationship, lending or
•
Due to limitations in individual bank lending and application
•
Each of the systems in place within the banks, which support
In a small number of cases, and for certain products, where a
lending to SMEs is very different and operates on a bank specific
both the existing and the new credit are included as credit
collected in an easily comparable manner
basis only. The information contained within the systems are not
customer applies for a top up on an existing facility, the value of
applications and cannot be separately identified
14
Approach Adopted
•
It is not always possible to analyse lending on a product by product
The participating banks are attempting to address these limitations
basis in all banks as applications for certain products are not
and have committed to doing so over time. However we understand
separately coded in back office systems
•
that this may take a considerable period of time and it may never be
possible to fully address the limitations associated with the recording
In the case of some banks, different systems are used in the same
of
bank, depending on the type or size of the credit facility in
particularly
the
recording
of
informal
including the following:
within that bank
•
The absence of informal application/ enquiry recording systems
and business processes in most banks
Data and data models in place across the five banks included in the
•
Review are very different and in many cases data models are not
•
comparable
The relationship driven nature of informal requests for credit
Lack of clarity and consistency across banks as to what represents
an informal credit application or enquiry
•
•
applications
applications for credit or enquiries due to a number of factors
question and these systems are not consistently structured even
•
credit
Individual banks do not capture customer trading data in a manner
The fact that informal requests for credit or enquiries are often
general rather than specific in nature and may not be fully
that allows us to perform our analysis by SME category – i.e. small,
quantifiable in value terms
medium, micro. Therefore all of the analysis set out in this section
is based on a single category of SME companies only as
Sectoral Analysis
represented by those companies who satisfy the EU definition of an
SME.
In order to ensure that data held by individual bank systems in
accordance with their own data models and classification rules was
These differences in systems, lending processes and data models have
comparable and could be collated to form a sectoral picture, we have
impacted on our ability to present a detailed consolidated picture of
used Central Bank sectoral codes.
lending to SMEs across the banking sector in Ireland as represented by
the five banks included in this Review. We do however believe that the
•
final overall picture and the information presented in this Report is
Central Bank sectoral codes are those codes used by the Central
Bank, and specified at EU level, under which individual banks
materially correct and presents a clear and, in so far as it is possible,
accurate picture of SME lending by the five banks participating in the
Review and thus the substantial proportion of credit extended to SMEs
operating in the Irish market
15
Approach Adopted
submit their quarterly returns to that Organisation. These codes
are based on NACE Rev. 1
•
o
codes1
o
The demand study has used standard NACE codes. The NACE Code
system is a pan-European classification system which groups
Charities
o
Government (central and other)
o
unique 5 or 6 digit code to each industry sector e.g. B - Mining and
Churches and religious organisations
o
o
organisations according to their business activities. It assigns a
Hospitals
Extra-territorial organisations and bodies
Private household lending.
Quarrying - B5 - Mining of Coal and Lignite
•
Customer Analysis
In order to ensure that the results are representative of the overall
SME population, the construction sector in so far as property
This Review was conducted on the basis of companies falling into one
development and speculative activities are concerned has been
of three categories of SME, as determined by the EU definition of each
excluded. Only companies who support or supply to the
category, which is set out in the Introduction to this document.
construction sector have been included
•
The specific sectors or subsectors excluded from the analysis are
set out in detail in Section 3 and are:
o
Non SME related financial intermediaries: non-bank credit
grantors, credit unions, collective investment schemes, SPVs
asset-backed securities, pension funds
o
o
o
1
Speculative real estate activities
Speculative construction activities
Educations – schools and colleges
NACE Rev. 1 ("Nomenclature statistique des Activités économiques dans la
Communauté Européenne") was adopted in order to establish a common statistical
classification of economic activities within the European Community in order to ensure
comparability between national and community classifications and national and
community statistics.
16
2
Demand for Credit from SMEs
Demand for Credit
Section 2 Demand for Credit
The following is a summary of the main points arising from the demand survey conducted as part of the Review of lending to SME’s, covering the
period March 2009 – September 2009 and as compared to the period of the previous review – i.e. June 2008 to February 2009 (The June SME Lending
Report):
Highlights
•
The demand survey: The demand survey represents a study of lending to SMEs conducted in Ireland examining the issue of credit availability. It
was carried out by a third party specialist firm Ipsos MRBI (formerly TNS mrbi) in conjunction with Mazars. A sample of SMEs were contacted and
asked to respond to a phone based questionnaire. This sample was selected from a database of over 122,000 companies. The survey was carried
out in October 2009 and respondents were asked to respond based on their experience in the previous 7 months
•
Respondents: The demand survey analysed the responses of 1,052 SMEs. The responses can be considered to be representative of the population
of SMEs and the sample is statistically representative across all sectors in the economy and across small, medium and micro SME organisations.
The profile of respondents is similar to that in the previous Review
•
Trading conditions: Survey responses indicate that SMEs continued to operate in difficult trading conditions in the 7 months to September 2009.
78% of respondents reported a continued decrease in turnover with 45% experiencing a decrease in turnover of 20% or more. A levelling off in the
rate of decline in employee numbers is apparent in the 7 months covered by this Report.
•
Volume of demand: 46% of survey respondents made one or more requests for credit during the period of the Review, representing a reduction
in the demand for credit in the period of approximately 6 percentage points when compared to the previous demand survey included in the June
SME Lending Review. Of those requests for credit 79% of applicants made a formal request (where a customer fills out a formal application form).
Only 11% of respondents indicated that they had requested or applied for a non bank form of finance
•
Professional Support: Some 50% of SMEs sought professional advice from auditors, accountants and other professionals) regarding ther financing
requirements
18
Demand for Credit
•
Nature of demand: The most common reasons for requests for new credit, amongst demand survey respondents, were for working capital/cash
flow reasons, to address declines in business revenues and to support a slowdown in debtor collection. The most requested products were loans,
followed by increased overdrafts, leasing/hire purchase products and new overdrafts.
•
Seasonal nature of demand: Whilst 43% of companies indicated that trading activity was seasonal in nature, only 24% of respondents indicated
that their demand for credit was seasonal, with quarters 1 and 4 and specifically the months January and December demonstrating the highest
levels of demand for credit
•
Decline rate: The rate of decline of applications for credit reported by SMEs (based on the demand survey) was 28% across all requests, an
increase of approximately 4 percentage points on the June 2009 survey. The decline rate across banks representing the significant majority of
applications varied with a range of 17% to 30% with the remainder outside that range. Micro companies reported the highest level of decline at
31%. It should also be noted that the decline rate on requests for non bank finance was 31%
•
Reasons for decline: The most common reasons for decline cited by respondents were ‘Change in bank lending policy’ as was the case in the June
demand survey, however it is important to note that on this occasion ‘decline in business performance’ was now recognised by applicants as one
of the main reasons behind the decline of an application for credit (16%), this represents a substantial movement in the 7 months to September
2009
•
Drawdown of approved facilities: 13% of respondents whose requests for credit were approved did not (either wholly or in part) avail of the
facilities. The main reasons cited were ‘Not needed at present’ and ‘Cost too high/risk’. This compares to a figure of 14% in the previous period
•
SMEs exporting: 17% of respondents indicated that in the last 12 months their business exported goods or services outside of the Republic of
Ireland with a total value greater than €100,000
•
Computer software/hardware industry: 8% of respondents indicated that their businesses develop, sell or implement software and /or hardware.
19
Demand for Credit
Approach and Overview
Demand for Credit
Methodology Adopted
captured in any systematic fashion by either the banks or by any
outlined above, a comprehensive survey of Irish SMEs was conducted
key objective of this Review, it was considered necessary to
in the June 2009 SME Lending Review. This independent demand study
levels, demand factors and experiences. This section sets out the
specialist firm. Both the size and sectoral profile of target respondents
The full demand for credit by SMEs is currently not comprehensively
To satisfy the Review objectives and address the practical constraints
statistical or regulatory body. As the examination of demand was a
using the same methodology and minimum sample targets as employed
commission an independent demand survey to capture demand
was conducted by means of a telephone survey by a third party
key findings of that survey.
was consistent with that employed in the original profile in June 2009
Current practical constraints in relation to the availability of demand
ensure that trends and patterns could be established.
Review, in order to establish a like for like comparison of results and
information include:
•
About The Independent Demand Survey
Records of enquiries for credit are generally not maintained by
•
by the individual banks, and in an effort to build on previous
the banks. This is changing at present in some banks, but for
surveys conducted and to comprehensively assess the demand for
the review period, we were unable to secure any meaningful
credit amongst Irish SMEs across all sectors of the economy, an
analysis of credit enquiries
•
In response to the deficiencies in credit demand information held
independent survey was conducted by Mazars
In most cases, preliminary enquiries for credit are assessed
informally by the relationship, lending or branch manager in
•
The independent demand survey involved the support of a third
party specialist firm, Ipsos MRBI.
each bank. These managers assess the merits or otherwise of
the credit proposal and advises as to whether the enquiry is
suitable to proceed to formal application stage. As such formal
•
Ipsos MRBI conducted a telephone interview based survey using a
questionnaire
applications for credit cannot be considered as a complete
designed
by
Mazars
with
input
from
the
Departments of Finance and Enterprise, Trade and Employment, as
picture of the full demand for credit.
well as the Irish Banking Federation
20
Demand for Credit
•
The
survey
sample
was
derived
from
an
Ipsos
MRBI
•
recommended database, which is compiled from multiple
The survey also included the Agriculture, Hunting and Forestry
sector. This sector may not always have been included in previous
sources and updated regularly. At the date of writing, the
SME credit surveys but does nonetheless represent an important
database held over 122,000 records. The total universe of
constituency of Irish SMEs. 30 respondents in this sector have been
records within the scope of this Review and from which the
included in the final demand study
sample was selected was approximately 99,000 SMEs
•
•
6,220 calls were made in the course of the survey. A number of
practice in statistical sampling. Minimum sample targets were set
calls were made to individual SMEs to ensure that the correct
to ensure that the sample was sufficiently representative of the SME
person completed each part of the questionnaire. In many cases,
population in terms of both SME size (micro, small and medium)
a number of conversations were held to complete the suite of
and sector (as defined by NACE codes)
questions. There were 403 refusals to participate in the study
and only 114 quota fails (i.e. where companies took part but
•
could not qualify for the survey because the quotas for the
the survey can be considered to be robust and statistically
The full survey questionnaire is attached as Appendix I to this report
representative of the Irish SME population across all sectors of
and detailed results are presented below.
the economy
Completed questionnaires based on a telephone interview were
compiled by Ipsos MRBI for 1,052 Irish SMEs and provided to
Mazars for review and analysis
•
The survey also addressed the topic of seasonality and the extent of
export activity in which each firm was engaged.
sector in which they were trading were already reached). As such
•
The selection of the sample was conducted in accordance with best
The survey assessed demand for credit from Irish SMEs across
all products within the scope of the Review and all business
sectors using standard NACE sectoral codes. Demand was
assessed for the seven month period from March 2009 to
September 2009. The survey was conducted in October 2009
21
Demand for Credit
Demand Survey Results
2.1 Profile of Respondents
This section summarises the results of the demand survey as follows:
compiled by Ipsos MRBI for 1,052 Irish SMEs.
•
Profile of respondents (including length of time in business,
trading
performance,
relationship
with
banks
membership of business representative organisations)
•
Completed questionnaires based on a telephone interview were
and
Length of Time in Business
There was no real movement in the length of time of respondents had
Requests for credit (including level of demand, nature and
been in business compared to the prior June 2009 survey.
seasonality of demand)
•
•
Approvals and declines
73% of respondents had been in business for 11 years or more (June
Drawdown of approved facilities
2009: 72%)
The results of our analysis of the demand survey in this Section are
Graph 1: Customer Profile by Length of Time in Business
presented for all banks, rather than just the five participating banks.
60%
Percentage of Respondents
Time Period of Survey
In reviewing results it should be noted that the time period of the
June 2009 survey was 12 months whilst the current survey referred to
the 7 month period from March to September 2009.
Seasonality may have an impact on the results of the survey.
40%
20%
0%
Up to 2 years Between 2 and Between 5 and Between 11 and More than 20
4 years
10 years
20 years
years
22
Demand for Credit
SME Category
However, it should be noted that the basis of the survey was to collect
SME Category: To ensure a suitable comparison with the prior survey,
nature of the sector, companies in certain sectors would not be involved
information across a targeted sectoral profile, and by virtue of the
the survey included the same representative profile of micro, small
in the export trade. Participants who indicated that they were involved in
should be noted that the actual profile of the SME sector contains a
manufacturing sector (processing & food, high tech and other
and medium companies across each business sector. However, it
the export of goods and services were primarily based in the
higher proportion of micro and small SMEs.
manufacturing)
2.2 Trading Performance
Graph 2: Respondent Profile by Size of Business
June 2009
September 2009
Turnover: SMEs are continuing to experience trading difficulties - 78% of
respondents indicated that they reported a decrease in turnover in the 7
30%
35%
30%
months to September 2009 –74% of SMEs indicated a decrease in the 12
35%
months to June 2009. Almost 45% of respondents indicated that
Micro
turnover had decreased by more than 20%, as was the case in the June
Small
Medium
35%
2009 Report. Micro and small companies reported greater levels of
decrease in turnover of more than 20% that their medium counterparts.
Graph 3: Respondent Profile by Movement in Turnover
35%
June 2009
Computer
Software/Hardware
Industry:
8%
of
respondents
10%
16%
participating in the survey were involved in the development, selling
September 2009
7%
15%
or implementation of hardware or software for the computer
Increased
industry.
Decreased
Remained the same
SMEs Exporting: 17% of those surveyed had exported goods /
74%
services outside of the Republic of Ireland in the previous 12 months.
23
78%
Demand for Credit
In the June 2009 survey, 26% of respondents indicated that there had
Relationship with Banks: The profile of respondents in this survey was
the September 2009 survey
survey were customers of their principal bank for more than 20 years
been either an increase/consistent level of turnover, this was 22% in
broadly similar to the June 2009 survey. 43% of respondents to this
(June 2009: 39%). Banks were not limited to those participating in the
Professional Support: Some 50% of SMEs sought professional advice
Review.
from auditors, accountants and other professionals) regarding ther
financing requirements
Graph 5: Respondent Profile by Length of Relationship with the Bank
More than 20 years
Employee Numbers: Fewer respondents indicated that they had
reduced staff levels compared to the June 2009 survey and the trend
Between 11 and 20 years
appears to indicate a levelling off in the rate of employee reduction.
The percentage of SMEs who are ‘increasing’ staff levels remains
below 10%.
Up to 2 years
Graph 4: Respondent Profile by Movement in Number of Employees
Not a customer / only joined
/ not sure
September 2009
June 2009
0%
20%
30%
40%
6%
7%
10%
36%
Membership of Business Representative Organisations: Almost 60% of
Increased
44%
respondents were members of one or more business representative
Decreased
50%
organisation. The number of members by business representative
Remained the same
organisation, recognising that an individual SME business may be a
57%
member of one or more organisations is depicted below:
24
50%
Demand for Credit
Graph 6: Respondent Profile by Membership of Business Representitive Organisations
Graph 7: Level of Demand
60%
A Chamber of Commerce affiliated
to Chambers Ireland
Irish Business And Employers
Confederation (IBEC)
Irish Small and Medium
Enterprises Association (ISME)
RG-DATA Advisory Board
Sector Specific Association
(e.g. CIF, IFA, IBA, PIBA, VFI etc)
Small Firms Association
50%
40%
30%
20%
10%
0%
June 2009
Other
0
50
100
150
200
250
300
350
September 2009
Bank Requests: Amongst participating banks, 90% of those customers
Number of Memberships
who made an application for credit in the period under review, applied
Respondents to the demand survey who are medium size companies are ineligable to be members of SFA
to their own bank.
Requested Products: The type of credit product demanded has changed
slightly
2.3 Requests for Credit
over
the
two
surveys;
SMEs
are
still
requesting
new
overdraft/increased overdraft and loans in large numbers, however the
demand for loans as a percentage of total requested products, has
Level of Demand: Demand for credit, based on the percentage of
increased slightly (by 4% of total applications) whilst the demand for
to 46% (last 7 months). 79% of those requests were formal requests
applications). Overdrafts, either new overdrafts or increases in existing
which is assessed internally by the bank) The profile of formal
months to September 2009 (June 2009: 43%). It should be noted that
2009 survey.
compared to previous periods
customers who requested credit, has dropped from 52% (12 months)
leasing and hire purchase products has decreased (by 5% of total
for credit (where a customer completes a formal application form
overdraft facilities accounted for 44% of requested products in the 7
requests has increased 5 percentage points from 74% in the June
overall demand for credit in the period to September 2009 has fallen as
25
Demand for Credit
Table 1: Reasons for Request for Credit
Graph 8: Type of Credit (Product) Requested
Percentage of Applications
60%
Reason Request
50%
June
2009
September
2009
40%
30%
20%
New overdraft
Increased
overdraft
Loan
June 2009
Invoice
Leasing or Hire
Discounting
Purchase
Other
September 2009
24%
+2
2.Decline in business
16%
17%
+1
3.Slow down in debtor
13%
12%
-1
4.Bad debts increasing
9%
9%
-
5.Increase in supplier costs
5%
6%
+1
10%
9%
-1
7.Property related loan
7%
5%
-2
8.New business venture
8%
7%
-1
10%
11%
+1
100%
100%
6.Expansion
Exporting
Companies:
products requested
by
companies
who
indicated they were involved in export activities were broadly in line
with those requested by all SMEs – i.e. increased overdrafts, followed
9.Other
by loans and followed by leasing and hire purchase products.
Nature of Demand for Credit
Movement
22%
collection
0%
Point
1.Working capital / cash flow
revenues
10%
Percentage
It should be noted that more than one reason was given in certain cases
The table below sets out the main reasons behind the requests for
in respect of a request for credit.
credit by Irish SMEs:
The predominant reason (behind the request by an SME for credit) was
either working capital or cashflow based (1-5 above). At 68%, this
represents an increase of 3 percentage points on the previous survey.
The level of decline which SMEs are experiencing in business revenues
appears to be a significant factor in their demand for credit.
26
Demand for Credit
Emphasis on expansion, new business ventures and property
Graph 10: Seasonality of Demand
acquisition (6-8 above) would appear to have become less of a driver
for new credit in the period of this Review.
Q1 - Turnover is seasonal
in nature
The reason for making a request can be graphically represented as
follows:
Q2 - Demand for credit is
also seasonal in nature
as a result of turnover
Graph 9: Reasons for Request for Credit
Percentage of Reasons
100%
Q3 - Seasonal demand for credit
is 20% greater than norm
80%
60%
0%
10%
20%
30%
40%
50%
Percentage of Total Respondents by Question
40%
Of those respondents who indicated that seasonal demand for credit
20%
20% greater than normal credit requirements, the majority indicated that
additional credit of between 21-49% was required. Quarters 1 and 4 and
0%
Working Capital
Growth/Expansion
June 2009
Other
specifically January and December would appear to be the periods in
September 2009
which the highest level of seasonal demand is apparent
Seasonality
The three sectors with the highest seasonal demand for credit would
Seasonality: 43% of respondents indicated that their business
•
appear to be the following:
•
turnover was seasonal in nature. 24% of respondents indicated that
•
their demand for credit is also seasonal in nature as a result of the
seasonal nature of their business.
Agriculture, Forestry and Fishing
Retail, Trade and Repair (Motor)
Hotels and Restaurants
It is clear from the above analysis that seasonality does not have a
significant impact on the demand for credit amongst SMEs
27
Demand for Credit
Informal Applications
2.4 Approvals and Declines
21% of respondents seeking credit did so in an informal capacity.
Overall Decline Rate: The rate of decline amongst participating banks
When asked for reasons as to why no formal application was made,
was 28%, an increase of approximately 4 percentage points on the June
the majority stated that an informal request was sufficient due to the
2009 figure.
repeat nature of their business or the personal relationship they
enjoyed with their principal bank.
A decline can be considered as an unsuccessful request for credit. The
decline rate across banks representing the significant majority of
This can be presented graphically as follows:
applications varied with a range of 17% to 30%. Those outside this range
can be considered as immaterial in the context of this decline analysis.
Graph 11: Reasons for Not Making A Formal Application
An analysis of bank data presented in Section 3 of this Report would
suggest a decline rate of 13.6% (June 2009 – 14%) representing a
Other
difference of some 14 percentage points between the declines rates
reported by respondents to the demand survey and those recorded by
No need to (inf ormal request suff icient due to
repeat business/personal relationship with bank)
banks.
This would primarily appear to arise as a result of a difference in
Knew that formal application would not be
successful
perception as to what constitutes an application for credit and when and
how credit applications are recorded on participating banks’ systems
Don't know
However, it is our opinion that given the limitations of existing credit
application processes and systems in participating banks, on the basis
As a test to see if it would be possible to get
request
that banks do not record declines in a consistent manner across banks,
0%
10%
20%
30%
40%
50%
60%
and following our analysis of bank records, a decline rate of
70%
approximately 18% in this and the prior period may be more
Percentage of Total Informal Applications
representative. This is explained in greater detail in Section 3 below.
28
Demand for Credit
The participating banks are attempting to address these limitations
the highest level of decline at 31% (June 2009: 30%) and medium SMEs
and will do so over time.
experiencing the lowest levels of decline at 23%. The trend appears to
indicate that the micro SME decline rate is relatively stable at 30/31%;
Decline Rate by Product: Decline rates varied by type of credit
however, the small SME decline rate has increased by 5 percentage
product requested. Invoice discounting had the highest decline rate
points to 29%. The decline rate for medium size SMEs has increased by
at 38% followed by new overdrafts at 34% and increased overdrafts at
4 percentage points to 23%.
32%. The comparison of decline rates by product between this report
and the previous June 2009 SME Lending Report are as follows:
Graph 13: Decline Rate on Applications for Credit by Company Size
40%
Graph 12: Decline Rate By Product
45%
40%
35%
30%
25%
20%
15%
30%
20%
10%
0%
Micro
10%
Small
June 2009
Medium
September 2009
5%
0%
New overdraft
Increased
overdraft
June 2009
Loan
Invoice
Discounting
Leasing or Hire
Purchase
Declines Rates For Non Bank Finance: in the course of this survey,
Other
applicants were asked to indicate whether they had applied for non bank
finance in the 7 months to September 2009. Non bank finance includes
September 2009
the following:
•
•
Declines Rate By Company Size: The rate of decline varied somewhat
•
across micro, small and medium SMEs with micro SMEs experiencing
29
Government financial support
Venture capital finance
Business angel or investor finance
Demand for Credit
Only 11% of respondents indicated that they had applied for non-
bank finance in the period of the survey. Of those applications, 38%
were informal.
Of those participants who applied for non-bank finance, 68% of
applications related to government financial support, however this
represents a relatively small number of applications overall. The
decline rate associated with non-bank finance was 31%
Decline Rate for Exporting Companies: the decline rate associated
with companies who indicated that they had exported goods /
services worth more than €100,000 outside of the Republic of Ireland
in the previous 12 months was 29%, or one percentage point higher
than the overall rate.
Decline Rate for Companies Involved in Computer Software/Hardware
Industry: the decline rate associated with companies who indicated
that
they
were
involved
in
the
development,
selling
or
implementation of hardware or software for the computer industry
was 39% or 11 percentage points higher than the overall rate.
However it should be noted that this rate is based on a very small
sample and as such may not be representative of the actual position.
30
Demand for Credit
Reasons For Decline
Survey results indicate that certain factors have an impact on, or, are perceived to play a part in, the decline of an application for credit by a bank.
The graph below sets out the main reasons for decline of applications for credit.
Graph 14: Reasons for Decline
Requested f acility sanctioned at
lower level / dif f erent structure
No longer a type of business to
which the bank is prepared to lend
No longer a sector to which
the bank is prepared to lend
Change in bank pricing policy
Change in bank lending policy
Deterioration in business perf ormance
Inadequate historic inf ormation provided
June 2009
Account perf ormance/history
September 2009
Inadequate repayment capacity
0%
5%
10%
15%
Percentage of Reasons
31
20%
25%
Demand for Credit
The most common reason for decline cited by respondents was
Graph 15: Analysis of Length of Time from Applications to Receipt
‘change in bank lending policy’. However the most significant change
40%
respondents
indicated
that
‘deterioration
in
business
between this and the previous report is the extent to which
financial
performance’ and ‘account performance/history’ were the main
reasons behind the decline of their request for credit by a bank.
If these reasons are profiled across those which relate specifically to
customer trading activity and those which relate to the bank, it can be
noted that 35% of reasons related to customer trading activity
compared to 32% in June 2009.
35%
30%
25%
20%
15%
10%
5%
0%
Less than one
week
More than one reason was given in certain cases in respect of a reason
Up to 2 weeks
Up to 3 weeks
June 2009
for decline, and it was noted that there was a significant increase in the
number of reasons given suggesting that applicants recognise that
multiple factors play a part in either the approval or decline of a
request for credit. In addition, a small number of applicants either did
not specify a reason or indicated “other” as a reason and as such
cannot be classified as a bank or customer trading specific reason and
have not been represented in the graph above.
Turnaround on Decisions: Based on responses from the survey 33% of
applications were processed within one week of application, with 67%
of applications being processed within four weeks (72%- June 2009).
This indicates a slightly longer decision time than that represented in
the June 2009 report.
32
Up to 4 weeks
September 2009
Between 5-12
weeks
More than 12
weeks
Still pending
Demand for Credit
2.5 Drawdown of Approved Facilities
Criteria / Conditions Attaching to the Request: The most common
Non Drawdown: Of those who were successful in their request for
criteria/conditions attaching to credit approvals were cited to be
credit, 13% did not (either wholly or in part) avail of those facilities.
‘personal
The most frequent reasons cited for not availing of approved credit
too much to avail of it/risk’. This compares to a figure of 14% in the
June 2009 report.
Percentage of Approved Applications
Not Drawndown
Graph 16: Reasons for not Availing of Approved Credit
100%
80%
60%
40%
20%
0%
June 2009
Other
and
‘requirement
to
provide
management accounts’. This can be presented as follows:
continue to be ‘not needed at present time’ and ‘costing the company
Costing the company We don't need it at the
too much to avail of
moment
it/risk
guarantees’
Still pending
September 2009
33
regular
Demand for Credit
Graph 17: Analysis of Conditions Attached to Approvals
Req. to provide regular management accounts
Different finance structure to that requested
Personal guarantee
Specific security
Facility fee
Security fee
Other fees (arrangement or other)
Requirement to maintain account with bank
Requirement to convert overdraft to term loan
June 2009 September 2009
Additional collateral
Other pre-drawdown conditions
0%
2%
4%
6%
8%
10%
12%
Percentage of Conditions
34
14%
16%
18%
20%
3
Supply of Credit
Supply of Credit
Section 3 Supply of Credit
The following is a summary of the main points arising from an analysis of the supply of credit conducted as part of the Review of lending to SME’s,
covering the period March 2009 – September 2009 and as compared to the period of the previous review – i.e. June 2008 to February 2009 (The June
SME Lending Report):
Highlights
Total Lending to SMEs: The total lending by the participating banks to the Irish SME sector has decreased from €33.6 billion in February 2009 to
€32.7 billion in September 2009. This represents a decrease of some 2.6%. Total SME lending excludes lending to development and speculative
construction, speculative real estate and certain other non relevant subsectors.
It should be noted that this Report, which covers the period March to September 2009, involved a more in-depth analysis of SME lending by
participating banks than that represented in the June 2009 SME Lending Report. Additional information obtained has resulted in the technical
reclassification of lending in a small number of instances, which was previously included as SME lending. This has led to revisions in both the
product category and sectoral exposure figures. The overall impact has been to restate the value of lending to SMEs by some €818.5 million but
overall trends in lending in this and the June 2009 report are unaffected
Credit Applications: The number of formal applications for credit received by the participating banks continued to decrease in the current review
period. In the prior period the number or volume of applications decreased by 11% over the period, in the current period a further decrease of 23% is
apparent. In value terms formal applications received by the participating banks decreased by 42% in the prior review period, followed by a decrease
of 27% in the current review period.
Decline Rate: The overall decline rate for formal applications for the current review period is 13.6%. This is relatively consistent with the decline rate
noted in the prior review period. This compares to a decline rate of 28% resulting from the Ipsos MRBI survey of bank customers. This difference
would primarily appear to arise as a result of a difference in perception as to what constitutes an application for credit and when and how credit
applications are recorded on participating banks’ systems.
36
Supply of Credit
However, it is our opinion that given the limitations of existing credit application processes and systems in participating banks, the fact that informal
credit applications are in most cases not recorded, on the basis that banks do not record declines on a consistent basis across banks, and following
our analysis of bank records, a decline rate of approximately 18 % in this and the prior period may be more representative. This is explained in more
detail in Section 3.4 below. The participating banks are attempting to address these limitations and will do so over time.
Decline Rate by Product: The decline rate for loans and overdrafts decreased over the period from 13.8% in March 2009 to 11.5% in September 2009
representing an average decline rate of 12.8% for the period. In the case of Finance & Leasing, the decline rate increased from 18.3% in March 2009
to 19.4% in September 2009 representing an average decline rate for the period 18.2%. This compares to the decline rates on the demand side which
indicate an increase in the decline rate for all products in the period to September 2009.
Decline Rate by Sector: Sectors with the highest decline rates continue to be the Real Estate, Renting and Business Activities Sector, Electricity, Gas &
Water Supply and Transport, Storage and Communications, whereas the lowest rate of decline is apparent in the Agriculture, Fishing and Other
Community, Social and Personal Services Sectors
Drawdowns: Drawdowns are being reported for the first time in this Report. Total drawdowns against approved loan and finance & leasing products
in the 7 months of this Review amounted to €2.6 billion. This can be considered as a relatively accurate representation of the amount of new credit
extended to customers of the participating banks in the seven month period March to September 2009
Overdraft Utilisation: At September 2009, 48% of approved overdraft limits (or €2.6 billion) remained unutilised and available to customers.
Flowback: The average flowback rate (Loans and Finance & Leasing only) for the seven month period covered by this Review was 10.7%. This equates
to an annual flowback rate of 18.3%. At this rate, the repayment term for total SME years would be almost 5.5 years. This varies substantially
amongst individual participating banks.
Credit Quality: The quality of the SME loan book as measured by bank credit grading systems deteriorated significantly in the period under review. In
June 2008 15% of lending (in value terms) was contained in the ‘Watchlist’ or ‘Impaired’ categories i.e. customers who are operating in excess of their
repayment obligations. In February 2009 the percentage had increased to 22% and by September 2009 it had increased further to 32%.
This
indicates that at September 2009 approximately one third of total SME customers represented by participating banks are operating in excess of their
repayment obligations
37
Supply of Credit
Approach and Overview
IBF and the Department of Finance and was supported by a series of
Supply of Credit
In the case of most of the participating banks, this return was then
detailed data definitions, as set out in Appendix II to this document.
reviewed by Mazars on site, to determine the consistency of the
This section summarises the current volumes of lending activity to
methodology used in the collation and presentation of the data
SMEs as represented by the five banks participating in the Review.
returned where possible.
These volumes have been expressed by an analysis of:
•
•
•
•
•
Total lending to SMEs - exposure
Our review incorporated a limited analysis of data held by the
Credit applications
individual banks in their lending and credit systems together with
Approvals/ declines
some high level testing.
Overdrafts limits v utilisation
Credit quality
Data analysis and testing was not however possible in the case of all
participating banks or in the case of all the categories of lending data
The initial Review, published in June 2009, also included an analysis of
provided.
the following, none of which have been examined in this Review:
•
•
•
Credit policy and its application
Credit pricing and its application
Changes in bank lending including terms and conditions of credit,
security, repayment terms, credit insurance and rates charged
•
The reasonableness or otherwise of refusals by banks of requests
for credit.
Methodology Adopted
Our review of the supply of credit was based on the analysis of data
received from the five participating banks in the form of a formal data
return. This return was devised by Mazars, with the contribution of the
38
Supply of Credit
Supply Analysis Results
3.1 Total Lending to SME’s
The current supply side review focussed on the period March 2009 to September 2009. In the context of the specific products reviewed as part of
this Report, the total lending to Irish SME’s amongst participating banks may be represented as follows:
Table 2: Total Bank Lending by Lending Product Category2
3
Previous
Report
Current Review Period
4 5
Feb
March
€million
€million
€million
€million
€million
€million
26,756
26,670
26,728
26,727
26,797
Overdrafts
3,013
3,111
3,033
2,976
Finance & leasing
2,938
2,838
2,778
848
792
33,555
33,411
2009
Loans
Invoice discounting
Total
6
2009
April
May
2009
2009
June
2009
July
2009
Aug
2009
Sept
%Change
€million
2009
€million
Feb – Sept
26,662
26,477
26,479
-1%
2,926
2,887
2,831
2,885
-4%
2,718
2,664
2,720
2,644
2,587
-12%
794
782
766
749
728
727
-14%
33,333
33,203
33,153
33,018
32,680
32,678
-2.6%
2009
2
Total Bank Lending to SMEs is also referred to as exposure
3
Lending excludes F1SPEC & F2CONS – speculative and development construction carried out under contract, J2NBCR & J3CRUN & J5INUN &J8SPVS & J1OPEN –non bank credit grantors, credit unions, collective
investment schemes, SPVs, asset-backed securities, pension funds, K11SPC& K12PRP – speculative and developmental real estate, public hospitals are excluded, however medical practices are included,
N3CHRC & N4CHAR – churches and religious organisations and charities, Government lending, extra-territorial organisations and private household lending
4
5
‘Review of Lending to SMEs – Final Report – June 2009’
The reclassifications noted on page 3, have led to revisions in the February 2009 lending figures reported in the June 2009 SME Lending Report. The changes involved a reduction of €97.8million in the loans
figure: €527.6million in overdrafts, €44.6million in finance and leasing and €148.5 million in invoice discounting
6
Invoice Discounting as referred to in this section relates to invoice discounting and other commercial service type products e.g. supply line. These other products are not material enough to warrant separate
disclosure above.
39
Supply of Credit
Total lending by the participating banks to the Irish SME sector has decreased progressively from €33.6 billion in February 2009 to €32.7 billion in
September 2009, representing a decrease over the period of 2.6%.
This reduction is made up of decreases in all product areas with the largest decreases in value terms apparent in loans (€277million), representing a
1% decrease in loans and finance and leasing (€351million). However in value terms, smaller decreases are apparent in overdrafts and invoice
discounting.
It is important to consider these reductions in the context of the proportion of total lending which each individual credit product accounts for. At the
end of current review period:
•
•
81% of the participating bank’s lending to the SME sector related to Loans,
8.9% to Overdrafts,
•
7.9% to Finance and Leasing and
•
the remaining 2.2% to Invoice Discounting.
The distribution of lending between each of these product categories has not varied significantly over the period under review.
40
Supply of Credit
Total Bank Lending by Sector
Total lending by business sector (using standard Central Bank sector codes) is as follows:
Table 3: Total Bank Lending by Sector
Previous Report7
Current Review Period
Feb
March
2009
2009
2009
2009
2009
2009
2009
Feb – Sept
€million
€million
€million
€million
€million
€million
€million
€million
2009
4,438
4,442
4,435
4,399
4,391
4,368
4,345
4,355
-2%
B – Fishing
345
346
345
341
346
342
341
337
-2%
C - Mining & Quarrying
330
327
329
314
309
298
317
351
+6%
2,836
2,800
2,772
2,805
2,776
2,736
2,705
2,744
-3%
286
277
268
266
261
262
234
243
-15%
8
1,332
1,398
1,382
1,338
1,328
1,331
1,310
1,303
-2%
G – Wholesale/Retail Trade & Repair
7,421
7,383
7,349
7,288
7,252
7,188
7,095
7,069
-5%
H - Hotels & Restaurants
7,182
7,273
7,340
7,381
7,404
7,414
7,362
7,327
+2%
I - Transport, Storage & Communications
1,668
1,631
1,614
1,602
1,599
1,604
1,564
1,541
-8%
358
350
346
352
372
362
359
358
-
K -Real Estate, Renting & Business Activities 10
4,113
3,906
3,858
3,817
3,799
3,809
3,757
3,760
-9%
M -Health & Social Work11
1,350
1,375
1,388
1,391
1,402
1,397
1,387
1,383
+2%
1,896
1,903
1,907
1,909
1,914
1,907
1,904
1,907
+1%
33,555
33,411
33,333
33,203
33,153
33,018
32,680
32,678
-2.6%
2009
A - Agriculture, Hunting & Forestry
D – Manufacturing
E - Electricity, Gas & Water Supply
F - Construction
J -Financial
Intermediation9
N -Other Community, Social & Personal
Services12
Total
7
8
9
10
11
12
April
May
June
July
Aug
Sept
% Change
Reclassifications have led to revisions in the February 2009 the lending figures reported in the June 2009 SME Lending Report. These are set out in the above table by means of revisions across a number of sectors.
Excluding F1SPEC & F2CONS
Excluding J2NBCR & J3CRUN & J5INUN & J8SPVS & J10PEN
Excluding K11SPC & K12PRP
Excluding part of M1HOSP – hospitals, however medical practices are included
Excluding N3CHRC & N4CHAR
41
Supply of Credit
The largest movement in percentage terms is apparent in sector E –
in formal applications arising from renewals and amendments to existing
Electricity, Gas and Water supply. This decline is however driven by a
credit facilities or whether those amendments are bank or customer
relatively small number of loans to that sector representing less than
initiated.
€43million.
Our commentary is therefore centred on formal applications for new
credit by new and existing customers.
3.2 Formal Applications for Credit by SMEs
Total Formal Applications for Credit
Formal Applications – New Applications from New & Existing
A formal application for credit can be defined as one where a customer is Customers
required to complete a formal application form which is assessed
internally by the bank or the commencement of a formal system credit In most cases, initial enquiries for credit from SMEs are assessed
informally by the relationship, lending or branch manager who forms an
application process.
initial assessment as to the merits or otherwise of the credit proposal.
Total formal applications for credit can broadly be split into the following Using their experience of the lending process and the customer’s
background, the manager advises as to whether the enquiry is suitable to
two categories:
1.
2.
New applications from both new and existing customers13
proceed to the formal application stage.
facilities (e.g. restructuring/reduction etc.)
Records of enquiries for credit are generally not maintained by the
Applications for renewals and amendments to existing credit
participating banks. For the period under review, we have not been able
In our Review we endeavoured to analyse these categories of application to secure any meaningful analysis of credit enquiries. Formal credit
separately and on a combined basis. We were successful in this regard applications cannot be considered as a comprehensive gauge of full
for some banks however we were unable to undertake this level of demand for credit, however given the absence of other information we
analysis for all. Due to the high proportion of the banks for which the have undertaken our review based on formal credit applications. An
analysis could not be undertaken, and the impact that the exclusion of analysis of the full demand for credit by SMEs has been undertaken by
the banks would have on the analysis, we cannot comment on the trends means of a separate demand survey as summarised in Section 2 of this
Report.
13
Application category 1 includes the top-up portion where an existing customer applies
for an increase in an existing facility.
42
Supply of Credit
Graph 19: Applications (Number)
The level of formal credit applications set out below represents all new
14,000
Number of Applications
credit applied for by both new and existing customers of the participating
banks (but, as explained above, excludes renewals and amendments of
existing credit).
The total value of formal credit applications in the period March 2009 –
September 2009 was €4.5billion based on 82,280 discrete applications.
12,000
10,000
It should be noted that the current review period is a seven month period
considered.
4,000
2,000
Mar 09
Apr 09
May 09
Jun 09
Jul 09
Aug 09
Sep 09
It is apparent that the total value of new formal applications for credit has
decreased over the period under review.
Graph 18: Applications (Value)
In March 2009 formal
applications for new credit amounted to €768 million for the month. In
€800m
September 2009 this had reduced to €557 million for the month. This
€700m
Value of Applications
6,000
-
while the prior review period was a nine month period. In discussions
throughout this Section, the differing review period lengths should be
8,000
equates to a decrease of 27% over the period. It is also evident that while
the trend has been that of a decrease throughout the period, significant
€600m
fluctuations are apparent on a month to month basis.
€500m
€400m
While the value of formal applications received by participating banks has
€300m
decreased over the period by 27%, the number of formal applications has
€200m
decreased by 23%. This indicates that the average application size has
continued to decline, having fallen significantly in the earlier review
€100m
period.
€0m
Mar 09
Apr 09
May 09
Jun 09
Jul 09
Aug 09
Sep 09
In the prior Review period (i.e. June 2008 to February 2009) the value of
new applications from new and existing customers decreased by 42%
over the period while the number of applications decreased by 11%.
43
Supply of Credit
Due to the length of the period for which this Review (and the prior Estate, Renting and Business Activities sector (20.9%) and the Wholesale/
Review) have been carried out, it was not possible to assess the Retail Trade and Repair sector (12.8%) comprise the next largest sectors
seasonality of any trends arising.
in terms of application numbers.
When credit applications are analysed on a sectoral basis, it is evident All other sectors each account for 7% or less of the total number of
that a small number of sectors comprise a large portion of the total.
formal applications.
The following graph clearly illustrates this point.
The profile of the number of applications by sector in the current and
prior Review periods is shown in the table below. As is evident the profile
follows a broadly similar pattern across both periods.
Graph 20: Formal Applications by Sector (Number)
Other Community, Social & Personal Services
Health & Social Work
Real Estate, Renting & Business Activities
Financial Intermediation
Transport, Storage & Communications
Hotels & Restaurants
Wholesale/Retail Trade & Repair
Construction
Electricity, Gas & Water Supply
Manufacturing
Mining & Quarrying
Fishing
Agriculture, Hunting & Forestry
-
5,000
10,000
15,000
20,000
25,000
30,000
35,000
It is evident from the above that the Agriculture, Hunting and Forestry
sector comprises a significantly larger portion of the total number of
formal applications (38.2% of the total) than other sectors.
The Real
44
Supply of Credit
Table 4: Percentage of Applications By Sector (Number)
Sector
The illustration below reflects the split of formal applications by sector in
value terms.
June 08
Mar 09
Feb 09
Sept 09
26.9%
38.2%
Fishing
0.4%
0.4%
Mining & Quarrying
0.3%
0.3%
Manufacturing
5.5%
5.9%
0.2%
0.2%
Construction
2.1%
2.7%
11.8%
12.8%
5.1%
4.9%
Mining & Quarrying
4.5%
4.3%
Fishing
0.7%
0.7%
to
Wholesale/ Retail Trade & Repair
Real Estate, Renting & Business
Activities
Other Community, Social & Personal
Services
Sector split not possible
Total
14
Graph 21: Formal Applications by Sector (Value)
to
Construction
Manufacturing
€0m
19.4%
20.9%
2.3%
2.1%
€200m
€400m
€600m
€800m
€1,000m
€1,200m
€1,400m
The profile of applications in value terms is broadly similar to the profile
in terms of number of applications.
6.4%
6.6%
14.4%
-
100%
100%
It should be noted that whilst the volume of applications in the
Agriculture, Hunting & Forestry sector is high, the average application
value is lower than the overall average. In addition, when considered in
the context of the level of lending to the sector (Table 3 above), it would
14
In the prior period a portion of applications (14.4%) could not be analysed by sector, and as such these
applications were grouped as one sectoral category. This issue has been addressed in the current report and it is
apparent that all individual sectoral application levels have increased to reflect this reallocation.
appear that the profile of agriculture lending is somewhat different to
that of other sectors.
45
Supply of Credit
for Finance and Leasing decreased by 37%.
Formal Applications– Product Analysis
Discounting are immaterial over the period.
Applications for Invoice
Due to limitations inherent in the systems of certain of the participating
banks, we have been unable to separate formal applications for loans It was clear in the initial Review (June 2008 – February 2009) that the
average size of a loan/overdraft requested has fallen significantly, over
from those for overdrafts.
the period. This trend would appear to have continued in the period of
The illustrations on this and the following page show the overall this Review. The average value of a loan/overdraft request is now some
proportion of new formal applications in each product category for the 7 40% lower in September 2009 than it was in June 2008.
month period of the current Review, in terms of both value and number
of applications.
Similarly the average size of a finance and leasing request for credit is
some 23% lower in September 2009 than in June 2009.
In value terms, Loans and Overdrafts comprise 85% of monthly
applications, Finance and Leasing comprises 12% of applications and The proportion of applications in each product category in both value and
Invoice Discounting accounts for 3% of applications. In the prior period number terms is as follows:
the proportions by product were 85%, 13% and 2% respectively.
In volume terms, Loans and Overdrafts comprise 85% of monthly
€800m
applications while Finance and Leasing comprises 15% of applications
perspective). In the prior period the proportions by product were also 85%
and 15% respectively.
In both value and number terms, the overall decrease in applications is
being driven primarily by a decrease in loan and overdraft applications
(due to the high proportion of applications for these products).
The
number of monthly loan and overdraft applications reduced over the
period by 23%, while the number of monthly applications for Finance and
Leasing decreased by 28%. In value terms monthly loan and overdraft
applications reduced over the period by 26%, while monthly applications
46
€700m
(Invoice Discounting applications are immaterial in nature from a volume
Graph 22: Formal Applications by Product (Value)
€600m
€500m
€400m
€300m
€200m
€100m
€0m
Mar 09
Apr 09
Loans & Overdrafts
May 09
Jun 09
Finance & Leasing
Jul 09
Aug 09
Invoice Discounting
Sep 09
Supply of Credit
Graph 23: Formal Applications by Product (Number)
Graph 25: Formal Applications by Product (Number)
14,000
12,000
10,000
8,000
6,000
4,000
2,000
-
10,000
8,000
6,000
4,000
2,000
Mar 09
Mar 09
Apr 09
Loans & Overdrafts
May 09
Jun 09
Finance & Leasing
Jul 09
Aug 09
Sep 09
Invoice Discounting
product in the current review period is set out below:
Graph 24: Formal Applications by Product (Value)
€700m
€600m
€500m
€400m
€300m
€200m
€100m
€0m
Mar 09
Apr 09
Loans & Overdrafts
May 09
Jun 09
Finance & Leasing
Jul 09
Aug 09
Apr 09
Loans & Overdrafts
The trend or movement in the value and number of applications by
12,000
Sep 09
Invoice Discounting
47
May 09
Jun 09
Finance & Leasing
Jul 09
Aug 09
Sep 09
Invoice Discounting
Supply of Credit
3.3
Credit Approvals
Analysis of Approvals of Formal Application by Product
The graph below sets out the relationship between the number of formal
applications received and approvals granted over the period under The graph below sets out the total number of approvals of formal
applications for new credit over the period of review (excluding approvals
review.
of renewals and amendments of existing credit).
12,000
12,000
14,000
Graph 27: Profile of Approvals of Formal Applications by
Product (Number)
Graph 26: Profile of Formal Applications and Approvals
(Number)
10,000
8,000
6,000
4,000
2,000
Mar 09
Apr 09
May 09
Applications
Jun 09
Jul 09
Aug 09
10,000
8,000
6,000
4,000
2,000
Mar 09
Sep 09
Apr 09
Loans & overdrafts
Approvals
May 09
Jun 09
Finance & Leasing
Jul 09
Aug 09
Sep 09
Invoice Discounting
The number of approvals per month has decreased by approximately 22%
While some applications received in one month may not be approved until over the period. This trend closely reflects the downward trend in the
a later month, it is evident that there is a consistent relationship between number of formal applications of 23% set out above.
applications and approvals over the period.
48
Supply of Credit
Analysis of Approvals of Formal Application by Sector
The following graph sets out the sectoral analysis of approvals over the The graph below shows the same analysis by value of applications:
period under review (by number):
Graph 29: Approval of Formal Applications by Sector (Value)
Graph 28: Approval of Formal Applications by Sector (Number)
Construction
Construction
Manufacturing
Manufacturing
Mining & Quarrying
Mining & Quarrying
Fishing
Fishing
-
5,000
10,000
15,000
20,000
25,000
30,000
€0m
€250m
€500m
€750m
€1,000m €1,250m
Approximately 72% of approvals were concentrated in three sectors; the The following table sets out the total approval rate (on a combined
Agriculture, Hunting and Forestry sector (40%); the Real Estate, Renting product basis) for each sector over both the prior review period and the
and Business Activities sector (19%); and the Wholesale/ Retail Trade and current review period:
Repair sector, (13%)
In the prior period these three sectors accounted for 67% of applications.
49
Supply of Credit
Table 5: Approval Rate By Sector
It should be noted in reviewing the above table that the volume of credit
June 08
Mar 09
applications in some sectors is relatively small and as such a small
Feb 09
Sept 09
disproportionate impact on the overall approval rate for that sector.
90.1%
90.0%
Fishing
91.3%
90.6%
Mining & Quarrying
88.3%
84.1%
Manufacturing
88.2%
84.9%
89.1%
82.0%
Construction
89.7%
86.3%
Wholesale/ Retail Trade & Repair sector
87.5%
85.5%
86.8%
85.5%
85.2%
82.3%
90.7%
84.2%
Activities
80.6%
79.5%
91.5%
87.8%
Sector
to
Real Estate, Renting & Business
Other Community, Social & Personal
Services
Sector split not possible
All Sectors
15
to
number of applications either approved or declined may have a
The spread of approval rates by sector in the current review period
ranges from 92.8% (for the Other Community, Social and Personal
Services sector) to 79.5% (for the Real Estate, Renting and Business
Activities sector).
The demand survey suggests a rate of approval of 72% across all banks
lending to SMEs whereas the bank data would suggest an approval rate of
86% (as set out above), representing a difference of some 14 percentage
points between the two. This would primarily appear to arise as a result
of a difference in perception as to what constitutes an application for
credit and when and how credit applications are recorded on participating
banks’ systems.
The banks formally measure applications for credit only when they enter
into the bank’s credit systems and processes whereas in general it would
appear that customers recognise applications from credit enquiry stage.
95.5%
92.8%
77.9%
-
86.1%
86.4%
Formal applications are sometimes completed internally within the bank
as distinct from by the customer. In addition, credit applications are, in
some cases only recorded on bank credit systems when a formal decision
has been reached by the bank.
15
In the prior period a portion of applications (14.4%) could not be analysed by sector, and as such was grouped as
one sectoral category. This issue has been addressed in the current report and it is apparent that all individual
sectoral application levels have increased to reflect this reallocation. As such whilst the approval rate has increased
on an overall basis from 86.1% to 86.4% as compared to the previous period, individual approval rates have
decreased. As such the sectoral approval rates for March to September 2009 should be considered as
representative of the actual position.
50
Supply of Credit
It is more meaningful however to review approvals in terms of the The graph below sets out the approval rates for loans & overdrafts and
approval rates per month for each product.
finance & leasing for both the prior and current review periods.
Graph 30: Approval Rates for Formal Applications by Product
100.0%
95.0%
90.0%
85.0%
Loans & overdrafts
Finance & Leasing
80.0%
75.0%
70.0%
Jun-08
Jul-08
Aug-08
Sep-08
Oct-08
Nov-08
Dec-08
Jan-09
Feb-09
Mar 09
Apr 09
May 09
Jun 09
Jul 09
Aug 09
Sep 09
The approval rate for each lending product category is as follows:
•
87% of formal applications for new loan and overdraft credit were approved over the period (the monthly approval rate ranges from 86% to 89%
over the period). In the prior period the approval rate for loans and overdrafts was 86%. It is not possible to separately analyse loans and
overdrafts
•
The corresponding approval rate for Finance & Leasing was 82% (the monthly approval rate ranges from 81% to 83% over the period).
prior period the approval rate for Finance & Leasing was 85%.
51
In the
Supply of Credit
•
3.4 Credit Declines
The Invoice Discounting approval rate fluctuates significantly over
the period. It should be noted that there were only 230 applications
Our analysis of declines includes all formal applications made in the
over the 7 month period for Invoice Discounting and as such it was
not deemed material for inclusion in the above graph.
review period which were not approved.
Further
analysis of the invoice discounting approval rate is deemed
Any analysis of the rate of declined formal applications is limited. This is
immaterial.
•
also due to the nature in which information is recorded on participating
bank systems (as set out earlier, enquiries are not recorded and formal
The blended approval rate for loans & overdrafts and finance &
applications are in some cases only logged after an initial assessment
leasing is 86.4% (prior period 86.1%); see below for an analysis of
has been completed by lending or branch managers).
this by sector.
The rates of decline, in number, product and sector are the inverse of
From April 2009 onwards, there was a noticeable upward trend in
the approval rates set out above. The graph below sets out the trend in
the approval rate for loans and overdrafts
the total number of declines in each month:
2,000
•
Graph 31: Declines of Formal Applications (Number)
1,800
1,600
1,400
1,200
1,000
800
600
400
200
-
Mar 09
52
Apr 09
May 09
Jun 09
Jul 09
Aug 09
Sep 09
Supply of Credit
Overall Decline Rate
•
credit amongst customers and banks
•
Similar to the position noted in the analysis of approvals, the level of
Differences in when and how credit applications are recorded on
participating banks’ systems
declines has decreased significantly over the period. The trend in
declines is influenced directly by the trend in formal applications.
A difference in perception as to what constitutes an application for
•
In
Certain limitations associated with the use of telephone surveys such
as those used on the demand side
that regard it is again more meaningful to consider the rates of decline
•
as opposed to the volume of declines.
The fact that informal requests for credit or enquiries are not in all
cases recorded by participating banks
•
If the decline rate is calculated using a consistent approach, to that used
The fact that processes used in participating banks for the recording
of credit applications and declines are not the same across all banks.
in the June 2009 report, and on the basis of the data currently held in
However the processes used by each bank are consistent with those
the participating banks systems, a rate of 13.6% is apparent (14% June
they used in the period covered by the June 2009 SME Lending
2009 Report). The rate of decline of applications for credit reported by
report.
SMEs (based on the demand survey) was 28% across all requests, an
•
increase of approximately 4 percentage points on the June 2009 survey.
The fact that the demand survey is based on all banks participating
in the Irish market, whereas on the supply side, the data is based on
the five banks participating in this Review only, although this is not
It is likely that some level of overstatement is inherent in the demand
likely to have a material effect on the decline rate
decline rate, however given the fact that only two such surveys have
been conducted to date, and as such significantly less data exists than
On the basis of these differences and following our analysis of bank
on the supply side, it is not possible to quantify the extent of that
records, it is our opinion that the impact of these limitations in bank
overstatement as of yet.
systems and processes is to understate the overall supply side decline
rate.
As such a difference of some 14 percentage points is apparent between
the decline rate reported by customers based on the demand survey and
As such and in order to address this difference, we have performed an
the decline rate recorded by banks based on the data currently held in
additional level of work in order to determine the quantum of this
their systems (supply side)
understatement. This work involved:
•
The difference in the demand and supply decline rates would primarily
The analysis of the variances in the range of credit decline rates
across application classes and sectors
appear to arise as a result of
53
Supply of Credit
•
An assessment of the impact of the adjustment of decline rates for
Finance and Leasing
The reworking of credit application and decline rates based on this
in March 2009 to 19.4% in September 2009 representing an average
anomalies apparent in data received
•
In the case of Finance & Leasing, the decline rate increased from 18.3%
analysis for a portion of credit applications
decline rate for the period 18.2%. This compares to an average decline
rate of 14.7% in the period covered by the June 2009 Report.
On the basis of the additional work which we have performed, and given
the limitations inherent in bank systems and processes as outlined
Invoice Discounting
and the prior period may be more representative.
meaningful analysis of credit applications or decline rates is possible.
above, it is our opinion that a decline rate of approximately 18 % in this
Due to the small number of invoice discounting applications no further
The participating banks are attempting to address the limitations in the
These decline rates compare to the rates reported on the demand side
over time. However it is unlikely that it will be possible to ever
period to September 2009.
credit application systems and processes and we understand will do so
which indicate an increase in the decline rate for all products in the
completely address the limitations associated with credit application
processes and systems and in particular to fully record informal
requests for credit.
The table below sets out the number of applications and the decline rate
for all sectors for both loans and overdrafts and finance and leasing.
This table also allows a more detailed sectoral comparison than that
included in Table 5 above:
Decline Rate by Product
Loans and Overdrafts
The decline rate for loans and overdrafts decreased over the period from
13.8% in March 2009 to 11.5% in September 2009 representing an
average decline rate of 12.8% for the period as compared to an average
decline rate of 13.7% in the period covered by the June 2009 Report.
54
Supply of Credit
Table 6: Decline Rate by Product and Sector – Loans and Overdrafts and Finance & Leasing
Loans and Overdrafts
Sector
Finance & Leasing
Prior Period
Current Period
Prior Period
Current Period
9 Months
7 Months
9 Months
7 Months
No of
Decline
No of
Decline
No of
Decline
No of
Decline
Applications
Rate
Applications
Rate
Applications
Rate
Applications
Rate
29,103
10.1%
28,670
9.7%
2,866
7.1%
2,735
12.6%
Fishing
418
9.1%
312
9.0%
21
0.0%
32
13.6%
Mining & Quarrying
259
12.3%
183
18.1%
99
10.1%
51
8.1%
4,538
12.1%
3,551
15.1%
1,969
11.0%
1,296
14.6%
152
9.2%
149
16.7%
83
14.3%
34
23.5%
1,504
6.6%
1,474
10.6%
1,018
15.8%
703
20.1%
12,249
12.6%
9,114
14.1%
1,698
12.4%
1,327
14.8%
4,903
12.2%
3,624
13.9%
1,128
17.3%
389
19.9%
3,035
15.3%
2,390
14.9%
2,337
14.3%
1,123
23.5%
731
9.2%
524
15.6%
127
10.5%
70
16.0%
20,303
17.2%
14,510
18.6%
2,718
35.6%
2,688
31.1%
2,410
8.9%
1,493
12.8%
357
5.9%
194
7.2%
4,277
1.9%
3,783
6.3%
3,323
8.0%
1,632
9.1%
16,981
22.0%
100,863
13.7%
69,777
12.8%
17,744
14.7%
12,274
18.2%
Manufacturing
Construction
Wholesale/ Retail Trade & Repair sector
Sector split not possible16
Total
Average Number of Applications per Month
16In
11,207
9,968
1,972
1,753
the prior period a portion of applications could not be analysed by sector, and as such was grouped as one sectoral category. This issue has been addressed in the current report and it is apparent that all
individual sectoral application levels have increased to reflect this reallocation. As such whilst the approval rate has increased on an overall basis as compared to the previous period, individual approval rates have
decreased. As such the sectoral approval rates for March to September 2009 should be considered as representative of the actual position.
55
Supply of Credit
3.5 Credit Drawdowns
This can be considered as a relatively accurate representation of the
Commencing with the current review period we will report the amount
amount of new credit extended to customers of the participating
of credit drawn down with regard to Loans and Finance & Leasing.
banks in the seven month period March to September 2009
Overdrafts and Invoice Discounting, due to the nature of the products,
do not lend themselves to an analysis of credit drawn down.
It should be noted that these draw downs include all credit drawn
down in the period for Loans and Finance & Leasing, not just draw
downs of applications sanctioned during the period. The drawdown
figure includes both new and existing customers.
Table 7: Credit Drawdown
Sector
Mar 09
to
Sept 09
€m
Loans
2,327
Finance & Leasing
Total
311
2,638
The figures above includes data from all participating banks.
56
Supply of Credit
3.6 Working Capital Facility Analysis
At September 2009, 48% of approved overdraft limits (or €2.6 billion)
remained unutilised and available to customers (June 2009 €3 billion)
Capacity in Approved Overdraft Limits
The overall value of approved limits has fallen during the period of this
An important aspect in the analysis of overdraft facilities is the
Review by 5%.
analysis of the amount drawn by customers over the period versus the
total amount approved by the banks. This is set out in the illustration
below.
Invoice Discounting
The average overdraft utilisation rate in the participating banks over
At
the period was 52%. In the prior Report we noted that the average
overdraft utilisation rate was 49%.
2009
Invoice
Discounting
accounted
for
only
approximately 2.2% of total SME lending in the participating banks. In
The average utilisation rate has
the prior period it was noted that Invoice Discounting accounted for 3%
therefore increased by 3 percentage points but this largely results
of total SME lending.
from a decline in overdraft limits over the period.
€7bn
September
Total lending for Invoice Discounting has decreased by 14% over the
Graph 32: Utilisation of Approved Overdraft Limits
current review period, following a decrease in the prior review period.
We understand that this is driven mainly by the fact that as customer
€6bn
turnover decreases, debtors and therefore availability of funding
€5bn
decreases proportionately.
€4bn
€3bn
We also noted from our review of Invoice Discounting that, similar to
€2bn
the position with overdrafts, there is a level of availability of approved
€1bn
debtors for funding that is not being utilised by customers.
€0bn
Mar 09
Apr 09
May 09
Utilised
Jun 09
Jul 09
Aug 09
Sep 09
Approved Limit
57
Supply of Credit
3.7
Flowback
R= repayments (capital and interest)
The percentage of total lending which is being repaid on an ongoing
O =opening exposure
basis is referred to as Flowback. An analysis of flowback has been
EM= valuation effects arising from exchange-rate movements
included in this report in order to provide some insight into the level
of
credit
repayments
participating banks.
being
made
by
SME
customers
to
D=drawdowns in the period
the
I=interest charged in the period
The Flowback calculation for the current review period included data
While we have been unable to fully quantify the level of credit re-
provided by four of the five participating banks.
structuring activities which took place during the period (i.e.
restructuring, extensions, repricing etc.), we have examined the
The calculation results in a flowback percentage for the seven month
percentage of the overall SME book which was repaid during the 7
period of 10.7%. This equates to an annual flowback rate of 18.3%. At
months covered by the Review.
this rate, the repayment term for SME Loans and Finance & Leasing
would be about 5.5 years.
Flowback is being reported from the perspective of Loans and Finance
& Leasing only (as Overdrafts and Invoice Discounting products
Factors which impact on the flowback calculation in particular banks
whereby customers operate on a limit basis do not lend themselves to
include the following:
this type of analysis). The current period is the first period for which
flowback has been reported.
•
•
The agreed formula for the calculation of flowback is as follows:
Their specific mix of lending products
The extent to which special arrangements have been entered into
with customers, such as term extensions and moratoriums on
repayments
•
_________________R_______________
The extent to which interest only repayment arrangements or
interest only repayment periods form part of the SME profile of the
O + EM + D + I
book
58
Supply of Credit
3.8
Movements in Credit Grades
Performing
It is evident, that the percentage of the participating bank’s total
Each participating bank operates a formal credit grading system. The
lending to SMEs graded as ‘Performing’ has decreased from 85% to
criteria used for credit grading include business risk, management
78% in the period June 2008 to February 2009 and has decreased
strength and experience and financial risk considerations such as
further to 68% at September 2009. This degradation has manifested
security cover/probability of default etc. The credit grade influences
itself in an overall 10% increase in the value of ‘Watchlist’ cases and a
the lending decision, the level of lending discretion necessary and the
7% increase in the value of ‘Impaired’ cases.
pricing of the credit facility.
Watchlist
We reviewed the structure of each of the participating banks’ grading
In June 2008 14% of total SME lending (in value terms) was considered
profiles over the period under the following three headings;
•
as ‘Watchlist’. By February 2009 this had increased to 20% and by
September 2009 it had increased further to 24%, representing an
Performing accounts where the customer is able to make the
increase of some 10 percentage points in the value of SME lending,
required credit facility repayments to the financial institution within
graded as “Watchlist” over the 15 month period June 2008 to
the terms of the agreement and the account is considered to be
September 2009.
performing,
•
Watchlist accounts which are 30 to 90 days in excess of their
Impaired
payment obligations
•
In June 2008 1% of total SME lending (in value terms) was considered
Impaired accounts which are more than 90 days in excess of their
as ‘Impaired’. By February 2009 this had increased to 2% and by
payment obligations and are considered as impaired under Basel 2
September 2009 it had increased further to 8%, representing an
rules.
increase of some 7 percentage points in the value of SME lending,
graded as “Impaired over the 15 month period June 2008 to September
The table and graph below set out the movement by credit grade of
2009.
SME customers in participating bank’s representing the majority of
SME lending, for both the prior and current Review periods.
The large movement of “Performing” credit into “Watchlist” or
All of the information presented in relation to credit grades and its
“Impaired” grades indicates that at September 2009 approximately one
analysis is based on the value of lending in each credit grade category.
third of total SME customers represented by banks participating in this
59
Supply of Credit
Review (in value terms) is operating in excess of their repayment
:
obligations.
Graph 33: Profile of Credit Grades
100%
Whilst our review did not encompass an analysis of the reasons behind
this movement, it is apparent that it may result from both economic
80%
and trading factors together with internal factors within participating
banks.
60%
This can be represented as follows:
40%
20%
Table 8: Profile of Credit Grades
Month
Performing
Watchlist
Impaired
June 2008
85%
14%
1%
February 2009
78%
20%
2%
-7
6
1
February 2009
78%
20%
2%
September 2009
68%
24%
8%
Movement
-10
4
6
Movement
(percentage
0%
Profile at June 2008
Profile at Feb 2009
Performing
points)
(percentage
points)
60
Watchlist
Profile at Sept 09
Impaired
A
ppendices
Appendix I – Demand Survey Questionnaire Used
62
SME LENDING Questionnaire
FINAL
Good morning/afternoon/evening. My name is ………………… from TNS mrbi, the opinion and polling research
company. We are conducting a survey on behalf of the Department of Finance.
Please may I speak to the person with primary responsibility for financial matters in your business?
Verify right person.
Q.1
Can I just confirm that you are the person who has primary responsibility for financial matters in your
business?
Yes ..........................................................................................
No ............................................................................................
1
2
CONTINUE
We are conducting a survey on bank lending to SME’s on behalf of the Department of Finance. It is a survey
that will be conducted again over the coming months in order to monitor changes to bank lending policies. All
information that we collect will be kept in the strictest confidence and results will be reported at a merged level
only. It will not be possible to identify any particular individual or business in the results.
SECTION 1 – COMPANY INFORMATION
Q.1a
For this survey we need to talk to businesses of different sizes and in different industry sectors.
Can you confirm that your business operates in _________________ (sector)?
Yes ..........................................................................................
No ............................................................................................
1
2
IF ‘NO’ at Q.1a ASK
INDUSTRY SECTOR Q.1b
ASK IF NO AT Q.1a
Q.1b What industry sector do you operate in? PROBE TO PRECODES – SINGLE CODE
Agriculture & forestry & fishing ..............................................................................................................
1
Manufacturing - Processing & Food from agricultural activities + manufacturing of food from non
agricultural activities ( tobacco and beverages) .....................................................................................
2
Manufacturing - High Tech (including pharmaceutical, electronic, electrical equipment etc) ..................
3
Manufacturing - All other manufacturing................................................................................................
4
Construction - General construction ( including general building & civil engineering) ............................
5
Construction - All other construction activities (excluding speculative activities) ...................................
6
Wholesale ............................................................................................................................................
7
Retail Trade & Repairs (non motor) ......................................................................................................
8
Retail Trade & Repairs (motor only) ......................................................................................................
9
Hotels & restaurants .............................................................................................................................
10
Transport, storage & communications ...................................................................................................
11
Financial & Insurance Activities ............................................................................................................
12
Real estate activities (excluding speculative activities) ..........................................................................
13
Professional, scientific & technical ........................................................................................................
14
Administrative & Support Service Activities ...........................................................................................
15
Human Health & Social Work Activities .................................................................................................
16
Other ....................................................................................................................................................
17
CHECK
QUOTAS
CLOSE
ASK ALL
Q.1c
Can you confirm whether your business involved in the computer software/hardware industry? By
‘involved’ we are referring to businesses that develop, sell or implement software and /or hardware.
SINGLE CODE
Yes ..........................................................................................
No ............................................................................................
Q.1d
1
2
In the last 12 months did your business export goods or services outside of the Republic of Ireland
with a total value greater than €100,000? SINGLE CODE
Yes ..........................................................................................
No ............................................................................................
1
2
ASK ALL
Q.2
Including yourself, how many people are currently employed in your business? SINGLE CODE
1 (self-employed) ....................................................................
2 - 4 .........................................................................................
5 - 9 .........................................................................................
10 -20 ......................................................................................
21 – 49 ....................................................................................
50 - 100 ...................................................................................
101 – 249 ................................................................................
250+ ........................................................................................
Refused/ don’t know................................................................
Q.2a
1
2
3
4
5
6
7
8
9
MICRO –
CHECK QUOTAS
SMALL CHECK QUOTAS
MEDIUM CHECK QUOTAS
CLOSE
What was your business’ turnover in the last 12 months, i.e. since September 2008, as per the
following bands? READ OUT - SINGLE CODE
Up to €100,000 ........................................................................
€100,001 - €500,000 ...............................................................
€500,001 - €1m .......................................................................
€1,000,001 - €2m ....................................................................
€2,000,001 - €5m ....................................................................
€5,000,001 - €10m ..................................................................
€10,000,001 - €20m ................................................................
€20,000,001 - €50m ................................................................
€50m+ .....................................................................................
Refused / don’t know...............................................................
1
2
3
4
5
6
7
8
9
10
CLOSE
GO TO Q.2b
ASK ALL REFUSED/ DON’T KNOW AT Q2.a
Q.2b
For this survey we need to ensure we are interviewing companies with a turnover of less than
€50million. Can you clarify whether your turnover is within the following bands? READ OUT –
SINGLE CODE
Less than or equal to €2m ......................................................
Between €2,000,001m and €10m ...........................................
Between €10,000,001m and €50million ..................................
Above €50million .....................................................................
Refused / don’t know...............................................................
1
2
3
4
5
CLOSE
ASK ALL
Q.3
How many years has your business been in operation? SINGLE CODE
Up to 2 years ...........................................................................
Between 2 and 4 years ...........................................................
Between 5 and 10 years .........................................................
Between 11 and 20 years .......................................................
More than 20 years .................................................................
Q.4
1
2
3
4
5
Are you a member of any of these business representative organisations? READ OUT MULTICODE
A Chamber of Commerce affiliated to Chambers Ireland .......
Irish Small and Medium Enterprises Association (ISME) .......
Small Firms Association ..........................................................
Other (specify) ___________________________ .................
None ........................................................................................
1
2
3
4
5
ASK ALL
Q.5
In the last 7 months, i.e. from March 2009 to September 2009, has the turnover of your business
increased, decreased or stayed the same? SINGLE CODE
Increased ................................................................................
Decreased ...............................................................................
Remained the same ................................................................
1
2
3
GO TO Q.5a
GO TO Q.5b
GO TO Q.6
ASK ALL WHOSE TURNOVER HAS INCREASED AT Q5
Q.5a
By about what percentage has your turnover increased? READ OUT - SINGLE CODE
0 – 9% .....................................................................................
10 – 19% .................................................................................
20 – 29% .................................................................................
30 - 39% ..................................................................................
40 – 49% .................................................................................
50%+ .......................................................................................
Not sure (DNRO) .....................................................................
1
2
3
4
5
6
7
ASK ALL WHOSE TURNOVER HAS DECREASED AT Q5
Q.5b
By about what percentage has your turnover decreased? READ OUT - SINGLE CODE
0 – 9% .....................................................................................
10 – 19% .................................................................................
20 – 29% .................................................................................
30 - 39% ..................................................................................
40 – 49% .................................................................................
50%+ .......................................................................................
Not sure (DNRO) .....................................................................
1
2
3
4
5
6
7
ASK ALL
Q.6
In the last 7 months, i.e. from March 2009 to September 2009, has your number of staff increased,
decreased or stayed the same? SINGLE CODE
Increased ................................................................................
Decreased ...............................................................................
Remained the same ................................................................
1
2
3
GO TO Q.6a
GO TO Q.6b
GO TO Q.7
ASK ALL WHOSE STAFF HAS INCREASED AT Q6
Q.6a
By about what percentage has your staff increased? READ OUT - SINGLE CODE
0 – 9% .....................................................................................
10 – 19% .................................................................................
20 – 29% .................................................................................
30 - 39% ..................................................................................
40 – 49% .................................................................................
50%+ .......................................................................................
Not sure (DNRO) .....................................................................
1
2
3
4
5
6
7
ASK ALL WHOSE STAFF HAS DECREASED AT Q6
Q.6b
By about what percentage has your staff decreased? READ OUT - SINGLE CODE
0 – 9% .....................................................................................
10 – 19% .................................................................................
20 – 29% .................................................................................
30 - 39% ..................................................................................
40 – 49% .................................................................................
50%+ .......................................................................................
Not sure (DNRO) .....................................................................
1
2
3
4
5
6
7
SECTION 2 – FINANCING YOUR BUSINESS
ASK ALL
Q.7
In the last 7 months, i.e. from March 2009 to September 2009, have you sought professional advice
regarding your financing requirements? By professional advice we are referring to advice from
auditors, accountants or professional financial advisors. SINGLE CODE
Yes ..........................................................................................
No ............................................................................................
1
2
ASK ALL
Q.8
With what bank is your main business account? SINGLE CODE
AIB...........................................................................................
Anglo Irish Bank ......................................................................
Bank of Ireland ........................................................................
Bank of Scotland (Ireland) ......................................................
National Irish Bank ..................................................................
Ulster Bank ..............................................................................
Permanent TSB .......................................................................
Rabobank ................................................................................
ACC .........................................................................................
GE Capital/ Woodchester........................................................
KBC (previously IIB) ................................................................
Other financial institution (specify) ____________________ .
Q.8a
How long have you been a customer of this bank? SINGLE CODE
Not previously a customer / only just joined............................
Up to 2 years ...........................................................................
Between 2 and 4 years ...........................................................
Between 5 and 10 years .........................................................
Between 11 and 20 years .......................................................
More than 20 years .................................................................
Not sure ...................................................................................
Q.9
1
2
3
4
5
6
7
8
9
10
11
12
1
2
3
4
5
6
7
In the last 7 months, i.e. from March 2009 to September 2009, have you requested from any bank,
any of the following types of finance? It does not matter if you have been successful or not. READ
OUT - MULTICODE
New overdraft ..........................................................................
Increased overdraft .................................................................
Loan ........................................................................................
Invoice Discounting .................................................................
Leasing or Hire Purchase........................................................
Other (specify) ____________________________ ...............
None ........................................................................................
1
2
3
4
5
6
7
GO TO Q.17
IF MORE THAN ONE REQUEST FOR ANY PARTICULAR TYPE OF FINANCE, ASK ABOUT MOST
RECENT.
Q.10
From which bank did you request______________ (FROM Q.9)? SINGLE CODE
AIB...........................................................................................
Anglo Irish Bank ......................................................................
Bank of Ireland ........................................................................
Bank of Scotland (Ireland) ......................................................
National Irish Bank ..................................................................
Ulster Bank ..............................................................................
Permanent TSB .......................................................................
Rabobank ................................................................................
ACC .........................................................................................
GE Capital/ Woodchester........................................................
KBC (previously IIB) ................................................................
Other financial institution (specify) ____________________ .
Can’t recall ..............................................................................
Q.11
I’m now going to ask you about your _______________ (FROM Q.9) request. Which, if any of these,
were reasons for making your ____________ (FROM Q.9) request? READ OUT - MULTICODE
New business venture .............................................................
Expansion ...............................................................................
Decline in business revenues .................................................
Slow down in debtor collection ................................................
Bad debts increasing...............................................................
Increase in supplier costs........................................................
Property related loan ...............................................................
Working capital / cash flow .....................................................
In ability to secure credit insurance ........................................
Inability of your supplier to secure credit insurance on
your business .........................................................................
Other (specify) __________________________ ...................
Q.12
1
2
3
4
5
6
7
8
9
10
11
12
13
1
2
3
4
5
6
7
8
9
10
11
Did you make a formal request, an informal request or both, when applying for __________(FROM
Q.9) SINGLE CODE
Informal request ......................................................................
Formal application (i.e. filling out formal application form
which is assessed internally by the bank) ...............................
Both .........................................................................................
Other (specify)______________________ ............................
1
GO TO Q.12a
2
3
4
Q.12a What were the reasons for not making a formal application? PROBE FULLY
Q.13
From the date of application, how long did it take the bank to process your _____________(FROM
Q.9) request?
Less than one week ................................................................
Up to 2 weeks .........................................................................
Up to 3 weeks .........................................................................
Up to 4 weeks .........................................................................
Between 5 – 12 weeks ............................................................
More than 12 weeks ................................................................
1
2
3
4
5
6
Q.14
Were you successful in your_____________ (FROM Q.9) request? SINGLE CODE
Yes ..........................................................................................
No ............................................................................................
Partially....................................................................................
1
2
3
GO TO Q 14.a
GO TO Q 14.b
GO TO Q 14.a
ASK ALL SUCCESSFUL / PARTIALLY SUCCESSFUL IN APPLICATION AT Q14
Q.14a Were any of the following criteria/ conditions attached to your ___________ (FROM Q.9) request?
READ OUT - MULTICODE
Requirement to provide regular management accounts/
debtors + creditors listings to the bank ...................................
Different finance structure to that requested ...........................
Personal guarantee .................................................................
Specific security .....................................................................
Facility fee ...............................................................................
Security fee ............................................................................
Other fees (arrangement or other) ..........................................
Requirement to maintain account with bank ...........................
Requirement to convert overdraft to term loan .......................
Additional collateral .................................................................
Other pre drawdown conditions ..............................................
Other (specify) _______________________________ .........
No ............................................................................................
IF CODES 1-12 AT Q14a ASK Q15
1
2
3
4
5
6
7
8
9
10
11
12
13
GO TO Q.16
ASK ALL UNSUCCESSFUL IN APPLICATION AT Q14
Q.14b Were any of the following reasons given by the bank for turning down your ___________ (FROM
Q.9) request? READ OUT - MULTICODE
Inadequate repayment capacity ..............................................
Account performance/ history .................................................
Inadequate historic information provided ................................
Deterioration in business financial performance .....................
Change in bank lending policy ................................................
Change in bank pricing policy .................................................
The sector in which your business operates is no longer a
sector to which the bank are prepared to lend .......................
The business which you are operating, is no longer a type
of business to which the bank is prepared to lend .................
Requested facility sanctioned at lower level/ different
Structure to that requested .....................................................
No reason given ......................................................................
Other (specify)______________________________ ............
None of these ..........................................................................
1
2
3
4
5
6
7
8
9
10
11
12
IF CODES 1-12 AT Q14b ASK Q.17
ASK ALL WHO HAD CRITERIA ATTACHED AT Q14a
Q.15
Did any of these criteria / conditions prevent you from availing of the sanctioned facility?
Yes ..........................................................................................
No ............................................................................................
1
2
ASK ALL SUCCESSFUL/ PARTIALLY SUCCESSFUL AT Q.14
Q.16
Have you availed of all or part of the facility or not availed of the facility?
Yes, I have availed of all of the facility ....................................
Yes, I have availed of part of the facility .................................
No, I have not availed of the facility ........................................
1
2
3
GO TO Q.16a
ASK ALL WHO HAVE NOT AVAILED OF FACILITY AT Q16
Q.16a What are the reasons for not availing of the facility to date? PROBE FULLY
ASK ALL
SECTION 3 – NON BANK FINANCING
Q.17
Did you enquire about any of the following types of non bank finance? READ OUT - MULTICODE
Government Financial Support ..............................................
Venture Capital Finance .........................................................
Business Angel or Investor Finance .......................................
Other non bank finance (specify) ____________________ ...
None (DNRO) ..........................................................................
1
2
3
4
5
GO TO Q.19
Q.17a Did you make an informal request, a formal request, or both, when applying for __________(FROM
Q.17) SINGLE CODE
Informal request ......................................................................
Formal application (i.e. where you submitted an application
form or certain documents such as a business plan or
financial accounts) ..................................................................
Both .........................................................................................
Other (specify)______________________ ............................
1
GO TO Q.17b
2
3
4
Q.17b What were the reasons for not making a formal application? PROBE FULLY
Q.18
Were you successful in obtaining finance from __________(FROM Q.17) or only partially successful
or is the decision still pending, or were you not successful? SINGLE CODE
Yes ..........................................................................................
No ............................................................................................
Partially....................................................................................
Still pending .............................................................................
1
2
3
4
ASK ALL
SECTION 4 – SEASONALITY
Q.19
Is the turnover of your business seasonal in nature? SINGLE CODE
Yes ..........................................................................................
No ............................................................................................
1
2
GO TO Q.19a
GO TO Q.23
Q.19a As a result of the seasonal nature of your business turnover, is your demand for credit also seasonal
in nature? SINGLE CODE
Yes ..........................................................................................
No ............................................................................................
Q.20
1
2
GO TO Q.20
GO TO Q.23
As a result of the seasonal nature of your business does your requirement for credit increase by more
than 20% during a single year? SINGLE CODE
Yes ..........................................................................................
No ............................................................................................
1
2
GO TO Q.21
Q.20b Thinking about your seasonal credit demand, what percentage above your normal credit
requirements is this? SINGLE CODE
Between 21 – 49% higher than normal requirements.............
Between 50 - 99% higher than normal credit requirements....
More than 100% higher than normal credit requirements.......
Q.21
1
2
3
Which quarter in the calendar year has the highest level of seasonal credit demand in your business?
SINGLE CODE
Q1 (Jan – Mar) ........................................................................
Q2 (Apr – Jun) .........................................................................
Q3 (Jul – Sep) .........................................................................
Q4 (Oct – Dec) ........................................................................
1
2
3
4
Q.21a. Which month in this quarter has the highest level of seasonal credit demand in your business?
SINGLE CODE
January....................................................................................
February ..................................................................................
March ......................................................................................
April .........................................................................................
May..........................................................................................
June.........................................................................................
July ..........................................................................................
August .....................................................................................
September ...............................................................................
October....................................................................................
November ................................................................................
December ................................................................................
Q.22
1
2
3
4
5
6
7
8
9
10
11
12
What type(s) of finance would you normally require to cover your seasonal credit requirements?
READ OUT - MULTICODE
New overdraft ..........................................................................
Increased overdraft .................................................................
Loan ........................................................................................
Invoice Discounting .................................................................
Leasing or Hire Purchase........................................................
Other (specify) ____________________________ ...............
1
2
3
4
5
6
Appendix II Data Definitions
63
The following are the principle definitions used in the preparation of this Report and in the collation and provision of data by the participating banks. It
should be noted, that whilst attempts have been made in the case of all banks to provide data in accordance with the definitions below, due to system and
data limitations, it has not been possible in all cases. These definitions should be read in conjunction with Appendix III – Assumptions and Limitations.
Name
Ref
Definition
A. SME Definitions
The category of micro, small and medium-sized enterprises (SMEs) is made up of enterprises which employ fewer than
SME
A.1
250 persons and which have an annual turnover not exceeding EUR 50 million, and/or an annual balance sheet total not
exceeding EUR 43 million
SME – Medium
Enterprise
SME – Small
Enterprise
SME – Micro
Enterprise
Within the SME category, a medium size enterprise is defined as an enterprise that employs fewer than 250 and more
A.2
than 50 persons and whose annual turnover is less than €50million and annual balance sheet total does not exceed EUR
43 million
A.3
A.4
Within the SME category, a small enterprise is defined as an enterprise which employs fewer than 50 and more than 10
persons and whose annual turnover and/or annual balance sheet total does not exceed EUR 10 million
Within the SME category, a microenterprise is defined as an enterprise which employs fewer than 10 persons and whose
annual turnover and/or annual balance sheet total does not exceed EUR 2 million
B. Applications
A formal application for new/increased credit for which new and existing customers are required to complete a formal
Formal Application
B.1
application form which is assessed internally by the bank or the commencement of a formal system credit application
process
Application
Approval (Sanction)
Application Decline
B.2
The formal positive response to a formal application for credit
B.3
The formal negative response to a formal application for credit
Name
Application
Pending
Ref
B.4
Definition
The formal status given to a credit application which is still awaiting a final credit decision (awaiting approval or
decline)
Credit applications which have been pending for a period of time (as defined by individual Banks) for which no final
Application Lapsed
B.5
credit decision has been made and which are considered to no longer remain as "live" credit applications and as such
are not being actively considered by a bank
Enquiry
B.6
An informal approach by a customer / potential customer regarding a new credit facility
Application Date
B.7
The date in (dd/mm/yy format) on which an application is first recorded by a bank
Decision Date
B.8
The date in (dd/mm/yy format) on which the final decision on the application is made
C. Product
Definitions
An arrangement in which a lender gives money to a borrower, and the borrower agrees to repay the money, usually
Loan
C.1
along with interest, at some future point(s) in time. Usually, there is a predetermined time for repaying a loan, and
generally the lender has to bear the risk that the borrower may not repay a loan. If loan is secured by an asset or
property, the lender has the right to foreclose on the collateral in case the account holder does not pay
Credit arrangement under which a lending institution extends credit up to a maximum amount (called overdraft limit)
against which a customer can make withdrawals. The most common form of business borrowing, an overdraft is a type
Overdraft
C.2
of revolving loan where deposits (credits) are available for re-borrowing, and interest is charged only on the daily
overdraft (debit) balance. If the overdraft is secured by an asset or property, the lender has the right to foreclose on the
collateral in case the account holder does not pay
Finance & Leasing
A credit facility whereby:
C.3
The lessee (customer) select an asset (equipment, vehicle, software) and the lessor (finance company) will purchase
that asset
Name
Ref
Definition
The lessee will have use of that asset during the lease and will pay a series of rentals or instalments for the use of that
asset
The lessor will recover a large part or all of the cost of the asset plus earn interest from the rentals paid by the lessee;
The lessee has the option to acquire ownership of the asset (e.g. paying the last rental, or bargain option purchase
price)
The finance company or bank is the legal owner of the asset during duration of the lease. However the lessee has
control over the asset providing them the benefits and risks of (economic) ownership
Hire purchase is an agreement whereby a person hires goods for a period of time by paying instalments, and can own
Hire purchase
the goods at the end of the agreement if all instalments are paid
Hire purchase agreements usually last between two and five years, the most common last three years. Under a hire
C.4
purchase agreement, the consumer/company does not actually own the goods until the last instalment is paid,
although he or she has full use of the goods throughout the repayment period.
Hire purchase agreements can be held with banks, building societies, finance companies and certain retail stores, for
example, garages
A method to draw loans from a company's outstanding invoices that does not require the company to relinquish
administrative control of the invoices. A lending institution will review the outstanding invoices on the company's
Invoice discounting
C.5
ledger, and will determine the amount of loans that it will extend.
Invoice Discounting as defined above relates to invoice discounting and other commercial service type products. These
other products are not material enough to warrant separate disclosure.
D. Sector - All data is based on sectoral codes used by CBFSAI for the credit institution quarterly return (the 'Analysis of Lending and Deposits (SEC)') which
in turn are based on NACE Rev. 1 codes
Section A
Agriculture, hunting and forestry
Name
Ref
Definition
Section B
Fishing
Section C
Mining and quarrying
Section D
Manufacturing
Section E
Electricity, gas and water supply
Section F
Construction
Section G
Wholesale and retail trade, repair of motor vehicles, motorcycles and personal and household goods
Section H
Hotels and Restaurants
Section I
Transport, storage and communications
Section J
Section K
Real estate, renting and business activities
Section M
Health and social work
Section N
Other community, social and personal service activities
Exclusions
F - Construction: Excluding F1SPEC & F2CONS – speculative and development construction carried out under contract
J - Financial Intermediation: Excluding J2NBCR & J3CRUN & J5INUN &J8SPVS & J1OPEN –non bank credit grantors, credit
unions, collective investment schemes, SPVs, asset-backed securities, pension funds
K - Real estate, renting and business activities: Excluding K11SPC& K12PRP – speculative and developmental real estate
L - Education (Schools and Colleges): LEDUCT
Name
Ref
Definition
M - Health and social work: Excluding part of M1HOSP – public hospitals are excluded, however medical practices are
included
N - Other community, social and personal service activities: Excluding N3CHRC & N4CHAR – churches and religious
organisations and charities
O - Personal (Private Households): OPERSN
P - Other Local Government: PLOCAL
Q - Central Government: QGOVNT
R - Extra-Territorial Organisations and Bodies: REXTOB
E. Other Terms
Asset(s) pledged to guarantee the repayment of a credit facility, satisfaction of an obligation, or in compliance of an
Security
E.1
agreement. Security gives a lender or obligee a legal right of access to the pledged asset(s) and to take their possession
and title in case of default on his/her obligations to the repayment of the credit facility
Any new credit facility extended to a new or existing customer which requires a formal credit decision. Credit should
Credit (New Credit)
E.2
therefore include restructuring, transfers, splits, re-pricing etc. The definition of credit excludes interest or other
flowback type transactions.
This is the formal credit grade assigned to an individual customer after an initial credit assessment and can be
Credit Grading
Definition
E.3
amended overtime as per Basel 2 rules. The criteria used for credit grading include business risk, management strength
and experience and financial risk considerations such as security cover/probability of default etc. The credit grade
influences the lending decision, the level of lending discretion necessary and the pricing of the credit facility.
Name
Drawdowns
Definition( €m)
Ref
E.4
Definition
The total value (€m) that the customer has drawn against his/her approved credit limit. It does not include account
flowbacks (interest, repayments etc.)
On an SME level exposure relates to the total value (€m) of lending currently extended to the SME across all credit
Exposure (€m)
(€m)
E.5
products at a point in time including all charged interest but not interest accrued. Exposure does not include
contingent liabilities and is reported gross with no adjustment for provisions
Appendix III Assumptions and Limitations
64
A number of data definitions have been used in the preparation of this Report and in the collation and
provision of data by the participating banks. These are outlined in Appendix I. It should however be
noted, that whilst attempts have been made in the case of all banks to provide data in accordance with
the definitions below, due to system and data limitations, it has not been possible in all cases
Due to certain limitations that existed in the data provided to us and in the lending systems within
individual banks, we have been required to make a number of assumptions in our analysis of lending
data to support our analysis of the supply of credit as set out in Section 3. The following is a listing of
the principle assumptions we have made and limitations noted and this report should be read in
conjunction with these assumptions and limitations:
•
Individual banks may not capture adequate customer trading data in order to report by SME category
– i.e. small, medium, micro. Therefore all analysis will be based on a single category of SME only as
represented by those companies who satisfy the EU definition of an SME
•
Participating bank’s systems support the unique identification of credit facilities for SME specific
customers. The exclusion of non SME records has been carried out either manually, through the
application of weightings to categories of lending (e.g. loan book) or through the
inclusion/exclusion of certain loan books
•
Records of enquiries for credit are generally not maintained by the banks. This is changing at
present in some banks, but for the Review period, we have been unable to secure any meaningful
analysis of credit enquiries
•
In most cases, preliminary enquiries for credit may be assessed informally by the relationship,
lending or branch manager in each bank. These managers assess the merits or otherwise of the
credit proposal and determine whether the enquiry is suitable to proceed to formal application
stage. As such formal applications for credit may not be considered as a complete estimate of full
demand for credit
•
Differences in decline information are apparent across the participating banks. Due to the manner in
which information is captured in certain of the participating banks, declines include all formal
applications made in the review period which were not approved. A limitation in this approach is
that these declines therefore include applications which have lapsed (i.e. applications which did not
proceed or expired due to timing reasons however this figure is immaterial in the context of overall
declines) and applications for which a decision is pending.
•
Finance and leasing and hire purchase products are generally categorised as one type of product
rather than two in most banks, and were treated as one product in the original Review at June 2009
and have been similarly treated in this Review
•
In certain banks a degree of estimation may be required when applying a sectoral profile to the data
•
The sectoral analysis/ sector codes and associated categorisation of companies will be performed on
the same basis as that used for the return of data to the Central Bank for the purposes of the
quarterly credit institution return (the 'Analysis of Lending and Deposits (SEC)')
•
In certain cases the sectoral classification may not be as detailed as the Central Bank sector codes
level as this information may not always be available. As such it may be not possible to precisely
exclude certain subsector codes. This may arise only in relation to low materiality products (Invoice
Discounting and Supply Line Credit) and we have relied upon management assurance to guide the
exclusions
Applications for loans and overdrafts which represent approximately 85% of total applications cannot
be separately identified in most banks, and as such our analysis has required us to consider both as
one credit facility. This is of particular importance given the reliance by SMEs on overdrafts as a form
of working capital finance.
There were also other cases where it was not possible to split
applications by product
Due to limitations in individual bank lending and application systems, it is not possible to analyse
formal applications fully. We cannot differentiate applications received by the banks into those
received from new customers as distinct from those received from existing customers, and as such
we have been obliged to conduct our analysis on a total new applications basis
Due to limitations in individual bank lending and application systems we cannot differentiate
between account management activities that are driven by the customer as compared to those that
are driven by the bank (e.g. restructuring, reduction in facility etc.) This is important as we have
been unable to identify the extent to which changes in facilities are requested or imposed
Certain bank systems were unable to separately identify new applications from new and existing
customers from renewals or amendments to existing facilities and assumptions were made in order
to allow us to do so
It is not possible to comment on trends in applications arising for renewals and amendments to
existing loan and overdraft facilities due to the fact that they are not separately identifiable for the a
number of banks making up the majority of the market. Our analysis of loans and overdrafts is
therefore focused on applications for new credit from existing and new customers only
In the application data provided it was not always possible to distinguish between existing and new
customers
Approval rates were calculated as follows:
Positive Response to an application
x 100 = Approval Rate (%)
Total Applications (Including pending and lapsed)
Whilst every attempt has been made by Mazars to test the accuracy and completeness of the data
provided, it has not been possible to test all data in the case of all participating banks, in those case,
we have been obliged to rely on assurances provided by management without independent
verification.

Review of Lending to SMEs Final Report March

Transcription

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