A comparative analysis of bank lending to small enterprises in Ireland and Germany

The issue of whether the Irish banking system compares favourably or more adversely with other banking systems in the provision of finance to small businesses and in particular enterprises with a riskier profile such as those with higher volumes of current or intellectual assets to fixed assets has been addressed by several authors to date. Foley and Griffith, 1993. Kinsella ,1992 (Culliton Report). Deloitte and Touche, 1994. Bannock and Albach, 1991 (Germany). Burns and Clements, 1992 (UK). Bank specific studies such as the above are complemented by studies which examine the performance of entrepreneurs and where the issue of banking comprises an ancillary issue rather than main focal point. Carpenter, 1993. Kinsella, Clarke, Storey, Mulveanny and Coyne, 1994. Cosh and Hughes, 1994 (UK). SBRC, 1992 (UK). Hogan, 1995. Kenny, 1994. Aston Business School, 1991. (UK) This survey seeks to contribute to the literature by focusing on the banking aspects of small business financing in an international context, building on the bank specific studies as its central thrust while incorporating some findings of firm specific studies where relevant. Some practices of German banks were applied as a yardstick against which to assess the performance of Irish banks vis a vis lending to small businesses. This study endeavours to assess the validity of beliefs th a t German banks exercise influence on firms through relationship banking, proxy voting rights and membership on supervisory boards which supposedly permit the conferral of advantageous lending terms to business. Attempts will be made to establish if these widely held views about the superiority of the German banking system are valid in a small business context. Through a series of in-depth interviews with German and Irish bankers who deal with small businesses from across the banking spectrum, additional insights emerge on how- the German bankers perceive changes in the Irish system, the securing of loans, fallout rates in riskier small business groups and the orientation of lending