Credit has become even tighter for small-and medium-sized companies in the euro zone, according to a new European Central Bank (ECB) survey published yesterday.
TThe central bank’s first study of more than 6,000 eurozone SMEs, including 110 from Ireland, reveals that a third found it harder to get credit in the first half of the year, despite government bail-outs for banks in many parts of the eurozone.
An Irish Government-commissioned survey published by consultants Mazars two months ago highlighted that bank data here showed that 14pc of credit applications were being turned down, whereas SMEs were reporting an average refusal rate of 24pc, rising to 30pc for businesses with fewer than 10 staff.
The Government here has tried to insist that banks lend by making recent bail-outs conditional on banks boosting lending.
Ability To Lend
ECB policymakers have repeatedly encouraged banks to lend, while politicians all over Europe have tried to coax them with harsher words and threats of bypassing them completely.
Banks say that their ability to lend has been tempered by the recession, which destroys companies’ credit worthiness.
The difficulties experienced by both large and small companies threaten to choke the already fragile economic recovery across the Continent and will feed into debate on whether to increase bank reserve requirements.
The Group of 20 leaders meeting in Pittsburgh this weekend will discuss whether banks should have to hold a greater percentage of their funds in reserve to protect against the kind of crisis that has rocked the global financial sector for almost two years.
That would mean even less money could be lent to businesses and households.
Most companies said in yesterday’s survey that a worsening business outlook was the main reason credit was harder to find, adding that tighter conditions mostly took the form of higher commissions, fees or other costs, along with higher collateral requirements.
Only 5pc of those surveyed reported higher interest rates on loans, however.
Ending The Crisis
ECB executive board member Gertrude Tumpel-Gugerell said yesterday that banks were the key to ending the financial crisis.
“Banks have taken centre stage in the ongoing financial and economic crisis, and any definitive resolution to the crisis essentially hinges on banks regaining financial health and public confidence on the basis of sustainable and welfare- enhancing business models,” Ms Tumpel-Gugerell said in a speech in Milan.
She said “the worst financial storm since the 1930s was only gradually calming down”.
Yesterday’s survey was the first to ask businesses about bank lending.
The ECB already asks banks whether they are squeezing lending or whether companies are simply borrowing less in the downturn.
The ECB did not break down figures for Irish companies.
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