THE STATE office set up to review why small businesses have been refused loans is one of the most “under-utilised” parts of the financial system, according to the Department of Finance’s head of banking supervision John Moran.

Addressing the banking conference, Mr Moran said he found it disappointing and frustrating that there were not more applications to the Credit Review Office, despite the criticism that the banks were not lending.

There needed to be “spot-checking” across the banks to determine lending levels, he said.

The department plans to survey 1,500 businesses to determine the level of credit supply and demand, and to repeat this exercise every six to eight months.

Mr Moran said banks had to move away from lending on property and “hard assets” as collateral to understanding the business models and cash flows of firms.

There were levers the department could pull to force banks to meet their lending targets, he said.

Lending decisions had become more centralised at the banks and they need to delegate more authority to local levels, he said.

He called on more tie-ups between businesses and venture capital funds to fund enterprise.

Brian Hartzer, chief executive of UK retail, wealth and Ulster Bank at Royal Bank of Scotland, warned that higher capital and liquidity demands on banks would inevitably reduce the amount of loans and increase their cost.

Greater demands by state regulators were creating “parochialism and protectionism” in banking and that this was “a very dangerous development”, he said.

Danny McCoy, director general of employers’ group, Ibec, said that there was a risk of a swing towards over-regulation after the crisis and “more emphasis on box-ticking than on management”.