Supply and demand issues to the fore in access to finance
21 December 10
InterTradeIreland Survey - Survey points to a two-tiered economic recovery with large manufacturing and exporting companies faring significantly better than small non-exporting businesses - Demand for new credit remains low among businesses with only 16% seeking new credit in the past six months - Business perception of the supply of finance is negative with only half believing they would be successful in any application
InterTradeIreland today published results of its all-island business monitor survey which in this quarter focused on companies’ views on the availability of finance from banks. The survey, which is undertaken amongst 1,000 businesses, 500 North and South, is the largest business survey on the island and demonstrates that companies are largely reliant on the banks for credit. Half of Northern Ireland businesses have an overdraft in place and 22% have a bank loan however in Ireland, higher percentages of firms (88%) in Ireland rely on banks as their main source of finance.
However, demand for new credit is low at present. Only one in six (16%) firms have applied for credit from their banks in the past six months. This percentage has been falling slightly throughout 2010 showing that demand continues to be slowing. Demand for new credit amongst businesses is lower in Northern Ireland (12%) than in Ireland (18%). However, of this small group almost three quarters have been successful (72%).
Negative perceptions about the supply of bank finance are certainly contributing to low demand for credit amongst businesses. The survey shows that almost two thirds of businesses (62%) view terms as unattractive and only half believe an application for a loan (47%) or overdraft (53%) would be successful.
Commenting on the findings, Aidan Gough, Director of Strategy and Policy in InterTradeIreland said, “There is clearly evidence of a decline in both demand and supply. Problems in the wider economy have reduced business confidence and hit investment decisions while deleveraging and recapitalisation in the banks are likely to continue to have an impact on supply. In addition, the need for some banks to restore their balance sheets is likely to increase the dangers of higher risk premia for business customers.”
He went on to say, “The banks, like the economy, are not a homogenous grouping and some have been more active than others in lending activity. Given this we would encourage businesses to “shop around”, particularly if they believe that terms are unattractive and applications are unwelcome.”
The general findings from the Business Monitor support the picture of a very weak recovery overall. Only one in four (27%) businesses report an increase in sales over the last quarter while 42% report a decrease. The gap between Northern Ireland businesses reporting decreasing sales (39%) and Ireland (43%) has significantly closed. The impact of the recovery is now being felt very differently between various sectors and sizes of companies.
Smaller businesses (45%) and those in sectors such as leisure, hotels and catering (58%), construction (57%) and retail and distribution (45%) are most likely to have experienced a decrease in sales. Larger manufacturing and exporting companies are fairing markedly better, pointing to a two-tiered economic recovery that is discriminating against small-to-micro businesses servicing domestic markets.
Business Monitor Q3 results - Executive Summary (634 KB)
Business Monitor Q3 results - Full Report. (1,334 KB)