SMALL BUSINESSES:BUSINESS GROUPS have welcomed the inclusion of measures designed to increase lending to small firms in the bank recapitalisation plan.

Under the plan, the recapitalised banks are to provide at least an additional 10 per cent capacity for lending to small and medium enterprises (SMEs) in 2009. This lending will be subject to demand from "viable" enterprises.

In addition, business lending will be supported by a new code of practice to be developed by the Financial Regulator.

The code, which will be produced in consultation with the Irish Banking Federation, will be introduced before the end of January 2009.

It will specify an "appropriate" notice period that must be issued by banks before changing banking facilities; arrangements to work with small businesses that fall into difficulty; and reassurance that "sustainable and productive" business propositions will not be declined loan facilities.

Business group Ibec welcomed the plan and said the main issue for business was to ensure that the financial sector was "able and willing" to supply credit to worthy business ventures, which have been hit by cashflow constraints as the credit crunch escalated.

"The recapitalisation provides the banks with the stability required to meet the needs of the Irish economy," said Ibec director general Turlough O'Sullivan.

He said the new code of practice would give small firms "the necessary confidence to consolidate and expand their businesses".

However, small business group Isme gave the plan a "very guarded" welcome, saying the announcement needed to be fleshed out to give specific targets to the banks on the amount of loans that must be made available.

"There is clear evidence of credit tightening by the banks in recent months, which is causing untold difficulties for many SMEs, particularly those suffering from cashflow problems," said Isme chief executive Mark O'Sullivan.

He called on the Government to impose a two-year freeze on bank charges.

THE CONSUMER:THE STATE'S biggest mortgage lenders have said they will give borrowers who fall into arrears on their mortgage at least six months before enforcing a repossession order on their home.

The measure is included in the Government's deal for the recapitalised banks, which includes AIB and Bank of Ireland. The third recapitalised financial institution, Anglo Irish Bank, does not lend to housebuyers.

Permanent TSB confirmed yesterday that it would also apply the new guidelines in its handling of mortgage arrears.

Under the deal, AIB and Bank of Ireland must also provide an additional 30 per cent capacity for lending to first-time buyers in 2009, subject to demand.

The deal will give borrowers who find themselves in financial difficulty extra breathing space in 2009, a year in which the number of redundancies is expected to be high.

All lenders currently comply with the Irish Banking Federation code of practice on mortgage arrears, which specifies that once a borrower misses a third repayment, the lender may issue a formal demand for either the full amount due or for possession of the property.

The Government said on Sunday that the banks had confirmed that mortgage defaulters would be "treated with respect" and that they would work with borrowers to ensure that repossession is truly an option of last resort.

Davy Research economist Rossa White said the 30 per cent target for mortgage lending and the 10 per cent boost for business lending were positive measures.

"Bad debts need to be replaced by fresh lending to credit-worthy businesses and households," he said.

The deal also obliges the banks to promote basic bank accounts to socio-economic groups that do not tend to hold bank accounts. Debit cards on these bank accounts will not be subject to Government stamp duty.

Banks are also being asked to submit proposals on improving the transparency of financial products to the Financial Regulator and to support financial education initiatives.