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The head of the State's Credit Review Office, John Trethowan, has said in his new report that decisions on loans to farmers and small businesses are "now dominated by numbers, ratios and credit bureau history, with minimal reliance placed on the borrower’s track record with the bank".
This is the result of banks closing 200 to 250 branches since the financial crisis, which has had a "wider economic impact on many rural towns and villages", the credit watchdog noted. There is little interaction left between farmers or small and medium enterprises (SMEs) and their local bank managers.
Farm borrowers remain largely unprepared for the levels of financial information, which all banks now require to assess their loan applications
"Little effort is now made to get to know the business, the sector it operates in and the business’ future prospects, and both SME and farm borrowers remain largely unprepared for the levels of financial information, which all banks now require to assess their loan applications," the report found.
This has led many farmers to turn away from bank loans and fund investments from their own pockets, which in turn is working against them when they do return to the bank for finance, according to the Credit Review Office.
"We see many cases, particularly farms, where the borrower has worked hard and has invested time and their own cash in building up the business/farm. When they do ask to borrow, the Credit Review Office has observed that banks are mainly focussed on the last few years' profit and loss performance," the report notes.
Credit reviewers found that this approach from banks fails to recognise the strength of farms after years of development from the farmers' own resources: "We frequently find that a visit from the banks’ own farm specialist is required before the potential from the previous self-investment is recognised. However, such visits and assessment are normally only available at a higher level of funding request."
IFA farm business chair, Martin Stapleton agreed with the Credit Review Office and said: "The most basic loan application is getting tied up in all sorts of red tape because the banks have moved away from their customers.”
Farm loans 'not the cause' of financial crisis
While the Credit Review Office recognises that banks have had to cut costs and meet more stringent regulations since the financial crash, its reports highlights that "the SME and farm sectors core business lending were not the cause of the recent banking crisis".
A survey of borrowers, including farmers, found that they wanted to see a return to direct relationships with a bank manager who knows their business. While the Credit Review Office does not expect banks to re-open rural branches, it suggested that "greater use of technology such as Skype or Facetime could help replace the traditional face-to-face meeting", and the level of relationship experienced in the past could be re-established at a distance.
The contraction in lending has now stopped and new lending to farmers and small businesses is now stable.
"Banks are continuing to lend," the Credit Review Office said.
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