Summary

As the UK economy struggles to recover from its longest and deepest recession on record, the issue of access to credit, particularly for SMEs, has become a major policy area for probing debate. The stock of UK lending to SMEs has been contracting since 2009 and a debate has emerged around how far viable businesses are able to access the credit needed to consolidate or grow.

The UK government has responded with various initiatives to improve the flow of credit to business, most recently the introduction of the Funding for Lending Scheme by the Bank of England and HM Treasury. At the same time the global financial crisis has led the UK and other governments to undertake major regulatory and structural reforms of the banking and financial services sectors. Banks are under pressure to strengthen their balance sheets in order to ensure that the circumstances leading up to the crisis will not recur and this has placed constraints on banks’ capacity to lend to business.

In Northern Ireland the fallout from the property boom, which saw high levels of lending by banks to business and consumers for the purchase of property, has further complicated the return to normal business lending. The property debt overhang has constrained the demand for and supply of credit and appears to have prevented potential business investment taking place. Another differentiating factor in Northern Ireland is the structure of bank ownership. Three of the four main banks are owned outside the UK. This has restricted their access to some of the initiatives to improve business lending, such as the Funding for Lending Scheme. Also banking regulation is not a devolved matter and this limits the power of the Northern Ireland Executive to take action to address the problems.

The NI Executive has introduced its own Access to Finance Strategy to support businesses looking for finance. The issue of Access to Finance has been extensively raised by the business community in consultations with Ministers. Business representative bodies have expressed strong concerns that banks are not responding to the finance requirements of business. Following discussions with the DETI Minister, the EAG decided to undertake a review of Access to Finance for businesses within Northern Ireland as part of its work programme for 2012/13.

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