A Galway Senator has called for the creation of a new bank in order to help the small business sector recover from the current recession.
Labour Senator Lorraine Higgins said the Government should examine the creation of new banks similar to the former ICC and ACC, who targeted important sectors in Irish business as a way of generating economic growth.
“The small business sector cannot recover from the recession as the current banking system is singularly failing to provide sufficient credit. There is a fundamental difference between the 1980s in small town Ireland and now. While people didn’t have huge turnovers in their businesses in the eighties, it is also true to say they didn’t have any significant borrowings either,” she said.
“Business people in the recent past have fallen victim to the aggressive marketing of banks, lax application of banking regulations and no governmental intervention, and as a consequence, they are now playing roulette with their livelihoods.”
Senator Higgins said there is currently 30 commercial units vacant in her home-town of Athenry, with “no economic activity, no jobs being created and no buzz in the town”.
“And I know Athenry is by no means unique, that this is indicative of what is happening all over the county and country.
“The current situation in the banking industry is counter-productive in that they are effectively not operating as banks. I know of individuals with good credit histories who have sought loans to buy properties and either they were offered 50 to 70 per cent of the loan to value (LTV), or they were told that the bank was not really lending but to come back next year.”
The Labour Senator added that Irish banks must realise they have to play their part in recovery effort and need to “adopt some patriotic initiatives”.
“Irish SMEs have a loan rejection rate of 24 per cent of all loan applications, second only to Greece in the Eurozone. Correspondingly, it is important to point out that the average rejection rate among the 17 Member States of the single currency area is 12 per cent, so it is twice as hard for Irish businesses to get finance in their own country, as it would be elsewhere.”
“Not only that, Ireland can also perversely boast of having the second highest level of ‘discouraged borrowers’, which means firms do not apply for loans, even though they may need credit. Even if they are lucky enough to secure a loan, the terms and conditions applied now to credit in Ireland are among some of the worst in the EU.”
Senator Higgins said she would be calling for a special working group in conjunction with the Department of Finance to explore the possibility and feasibility of providing similar LTV arrangements for the SME sector as what is available to residential mortgage customers.
“Acquiring 92 per cent finance for commercial properties would make a huge difference to those seeking loans, in that they would not be left with a cliff to climb in order to make their business dreams a reality. A 92 per cent mortgages for commercial properties would give a timely boost to the SME sector, which in turn would allow new businesses open and thus generate economic activity in small rural towns.”