Brian Lenihan

It was interesting to see both AIB and Bank of Ireland, when reporting on their recent results, mention how dedicated and "fully committed we are to supporting our personal, business and corporate customers through this period of significant challenge". Then, in a blindingly obvious but truthful statement, they mention that "demand for new credit from SMEs has reduced, as a consequence of the current difficult economic environment", just in case we didn't know.

Like the sight of the first cuckoo, is this the first truthful statement from any of the banks this year?

In their assertions that 90% of loan applications are being approved, the manipulation of lending statistics by bankers has been brought to Jesuitical proportions. In fact the real figures are only a portion of that, because the definition of 'application' is 'fully completed formal application'. Most applications are refused before they get that far. The ISME Bank Credit Survey shows a consistent refusal rate in the range of 48% to 58%, a far cry from the banks' 10%.

The next big lie is that the 'impaired' assets to be bought by Nama are the obstruction that stops the flow of capital to businesses, and their removal to Nama will restart the process of lending by retail banks. The new, squeaky-clean banks will not begin lending once the transfer is complete and the Nama bonds are swapped for ECB cash. I'm afraid this is not enough to restore lending to previous levels.

Lies apart, the question remains: will banks lend to business or pay off their bond-holders with the Nama money? With more than €50bn in bonds and a coupon of 4% and over, the repayment will save the banks €2bn a year, with absolutely no risk attached. No contest.

The real challenge at the moment is to enable the banks to lend again to businesses of all shapes and sizes, vulnerable in the short term but viable in the medium term. This aspiration runs totally against the efforts of the banks to become profitable again after their recent near-death experience.

Banks need a balance sheet that has the required capital-to-loan ratios, which have gone completely out of kilter in recent years as loans, both good and bad, reached stratospheric proportions.

In a nutshell, the banks need more capital and fewer loans. So much for SME lending, then, as our 'prudent' bankers see these small fry as more trouble than they are worth and more of a risk than they are willing to take.

That's only the balance sheet aspect of lending; how about the profit motivation of bankers (never shrinking violets in that field)? There will be massive pressure on the banks to make as much profit as possible in the next few years and they will revert to making their money from charging interest, rather than speculating in property.

The only way that the banks are going to lend to small business is if they can get a return that covers their cost of funds and pays them a whopping premium for the risk involved. No wonder they need to be brought kicking and screaming to the SME lending table. No wonder the finance minister has had to demand that €6bn extra be lent to SMEs by both the banks involved over the next two years. I don't envy the job of John Trethowan in ensuring that this happens.

Nama was never going to release funds to ordinary business and it is imperative that the government devise further credit supply policies, separate from Nama, to ensure new sources of lending.

At a time when the citizen is saving almost 12% of after-tax income, is it not time to introduce a government bond, whereby we put that money to work for the country and allow the people to profit from the inevitable upswing in the economy, rather than waiting for the Nama chickens to come home to roost? These government-guaranteed funds could be managed by the National Treasury Management Agency (NTMA) and then lent to businesses at reasonable rates, creating competition for the greedy banks and helping to keep interest rates down.

Lenihan announced a proposed "national solidarity bond" in the last budget for infrastructure and capital investment purposes. This could be extended to include lending to indigenous industry, because if we don't get funding through to these firms, we may not have any need for new infrastructure. The bonds could also have a positive effect on the pensions mindset by introducing people to longer-term savings by having the bonds 'back-ended' with an attractive bonus.

The SSIA project was a clear demonstration that, properly marketed, €16bn could be saved. That type of money would go a long way to bridge the funding gap for small, vulnerable, indigenous enterprises. Unlike the current savings, lying stagnant, this money could be used in the economy to stimulate the recovery.

Mark Firelding, Chief Executive of ISME