Optimism Escalates But Underlying Trends could indicate SME’s may not have an Appetite to Engage with Banks

19th July 2010

Cork Chamber President Ger O'Mahoney today warmly welcomed the continuous rise in positive sentiment amongst Cork based businesses which have emerged from the recent Chamber's economic trends survey for quarter two. The survey illustrates that companies are more confident about their future prospects across a range of indicators; however, it also highlights an underlying trend which could indicate that SME's may not have an appetite to engage with the banks with regards to accessing credit.

Commenting on the results, Mr O'Mahoney outlined, "The survey completed by almost 150 business owners and managers within the SME and multinational sectors in the Cork region has once again highlighted the growing optimism amongst Cork's business community. There has been a notable increase in the positive outlook of businesses in the region, with 75% stating that they are confident about the financial future of their businesses. This represents an increase of close to 6% on Q1 2010 figures, and a 16% increase on Q2 2009 figures".

"While this growth in optimism, in addition to the positive outlook expressed across a number of other economic indicators is a welcome development, it is important that this impressive improvement does not hide a number of underlying sobering facts which have emerged. Firstly, with regards to obtaining credit, our survey shows that nearly 80% of respondents are not currently seeking bank finance. When one takes into consideration the wider economy, and given that getting loans to flow more normally to small businesses is a critical ingredient to sustaining our economic recovery and reducing unemployment numbers, one has to question whether the small and medium sized enterprises which represent the largest part of the Irish enterprise base have no requirement for additional funding at present or have they given up dealing with the banks? It also highlights the importance of all banks outside the NAMA process playing their part in making credit available to business and engaging with the Credit Review Office process, who have launched their first report in recent days", Mr O'Mahoney continued.

"One of the main objectives in the Chamber quarter 2 survey was to take a closer look at NAMA and to gauge how it is affecting businesses in Cork either directly or indirectly. While almost 79% of respondents indicated that they materially understood NAMA, the majority (70%) stated that they were unaware of the implications of being an associated debtor. Similarly, over half of the respondents (51%) indicated that they were unaware of what classes of loans would be transferred to NAMA and 78% stated that the transfer of all relevant loans in the €5 - €20 million category in quarter 1 of 2011 would not directly or indirectly affect their business. While Cork Chamber believes that NAMA is vital to economic recovery, it is essential that the agency and the Government start engaging in a comprehensive communications process with the business community on all aspects of the NAMA business plan. Our results further validate this point, highlighting the intrinsic appetite amongst the business community for more detail to enable a more thorough assessment of the implications of NAMA on the country's enterprise base".

"On a positive note 85% of businesses indicated that they have no plans to reduce employment in the next 12 months. This compares favourably with a figure of 52% in Q2 of 2009. 38% of companies also have plans to increase employee numbers over the next year. However, businesses indicated that their challenge at present is the generation of new business (54.4%), followed by reducing costs (34.5%). On the issue of cost competitiveness, we acknowledge recent statistics from the Central Statistics Office Services Producer Price Index (SPPI) which highlight that the overall cost of services fell by 4.1% between 2008 and 2009 and the Consumer Price Index at the end of Q1 2010 had fallen 7.8% below the peak level recorded in 2008. Nonetheless, Cork Chamber believes that there needs to be further action taken by Government to reduce costs for the business community, especially with regards to commercial rates and other local authority charges. It is imperative that these are brought into line with cost reductions in other aspects of the economy".

"In view of the need to widen the tax base for local authorities, it was interesting to note when asked about the potential introduction of an Annual Property Tax, 54% of respondents indicated that they didn't support the measure, while almost 51% indicated that they supported the introduction of domestic water charges", concluded Mr O'Mahoney.

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