Updated, 12.13

IRELAND’S ‘PILLAR BANKS’ won’t meet their official targets for lending to small and medium enterprises this year – because of a shortage of applications for credit, a new report has said.

The quarterly report from the Credit Review Office‘s John Trethowan found that the €3 billion targets set for lending for AIB and Bank of Ireland – which were laid down by the government in July 2010 – would not be met this year.

The report from John Trethowan said that while there was still no official measure of demand for credit from small businesses and farms, his discussions with the banks suggested that demand for new lending was “subdued”.

Demand for credit was “sluggish” – while credit facilities, where they had been offered, were being drawn down only very slowly, Trethowan added.

“Businesses which became accustomed to the easy credit era and are presenting elemental, or – worse still – casual proposals, are being refused,” he said.

The report continued that it was impossible to grow the level of new lending in the country when loans were not being demanded in the first place.

Companies’ failure to apply for credit was an understandable symptom of businesses saving at a level too high for an economic recovery, he added.

The Small Firms’ Association condemned the findings, saying it did not reflect the reality of the current business climate.

“The overwhelming response from our members is that there’s no point going near the banks,” its director Patricia Callan said. “The breach of trust has reached crisis point.”

Callan said some small firms were looking into setting up their own structures for securing future finance, but that such proposals could take years to come to fruition.

She also criticised the government’s failure to measure demand for credit, with the last survey of credit demand taken 18 months ago.

ISME also rubbished the report, with chief executive Mark Fielding saying the reality was that “banks are refusing lending facilities to the majority of SMEs and in turn are failing to meet the targets set down by government.”