Lending to small firms in Ireland is improving, a new report from the Credit Review Office (CRO) has found.

The quarterly report said the two banks covered under the Government's recapitalisation plan - AIB and Bank of Ireland - have met commitments made in their lending plans that were submitted to bother Department of Finance and the CRO last May.

A target of €3 billion in new lending by each of the banks, laid down by the Minister for Finance Brian Lenihan, is on target to be achieved by April.

The banks also committed to implementing training programmes for front line lenders and support staff, and business development roadshows aimed at SME customers.

The two banks have completed 170 internal reviews of decisions on loan applications. Some 131 of these decisions were upheld, 27 were reversed and 12 are still being reviewed.

"The mantra that ‘banks aren’t lending’ is a widely quoted piece of conventional wisdom used in the media without challenge or clarification, or any empiric evidence. Certain surveys are also routinely used as a commentary on the market without any question as to their underlying quality, or to which banks the findings refer to, and more importantly the market’s underlying demand for credit," the head of the CRO John Trethowan said in his report.

"Whilst there were undoubtedly major credit supply problems in the market in 2008/9, the conventional wisdom has failed to recognise the progress made since then – at least in the two main banks which I monitor. The situation may or may not prevail elsewhere in those banks which have not been subject to the Credit Review Office influence."

He also noted that banks reported "subdued" demand for new lending from SMEs.

Mr Trethowan said he has sought further clarification from the banks on the amount of "new" money being lent.

The Minister for Finance welcomed the report, saying it showed “encouraging signs”.

“The Government, through the CRO, is sustaining pressure on our banks to deliver on the strong commitments given in their plans to support viable SMEs in all sectors of the economy and in every corner of the country,” he said. “I welcome the fact that no region or industry has been disproportionately impacted by the reduction in lending since 2010.”

The CRO has overturned decisions relating to €978,300 to date, and the banks have provided the credit.

In the report, Mr Trethowan noted that to date, none of the non-Nama banks have volunteered to join the Credit Review Office process.

"This is very disappointing, and to address this I will write to the Financial Regulator with suggestions to simplify and strengthen the code of practice for SME lending for all banks," he said.

Chambers Ireland said it was impossible to have a true picture of the situation until all banks, including foreign-owned institutions based in Ireland, take part in the process. AIB and Bank of Ireland make up about two-thirds of the market.

“Chambers Ireland continues to work with the Credit Review Office to get the message out to SMEs that lending opportunities do exist for viable businesses,” deputy chief executive Seán Murphy said.

“In this time of economic uncertainty, it would be most helpful if other voices accepted the findings of continuous reports. The reality is that there are relatively low levels of applications due to reduced demand in the economy as businesses and households deleverage and save.”

AIB today described SMEs as a "critical" sector.

"We are conscious that the economic environment remains challenging but we are determined to continue to support viable SMEs and we encourage early and regular engagement between SMEs and ourselves," the bank said in a statement.

"An open and transparent credit process is key during these difficult economic times and AIB will continue to encourage our customers to avail of both the AIB internal appeals process and the external and independent Credit Review Office Appeals."

The Irish Banking Federation (IBF) also welcomed the report, saying it provided "further concrete evidence" of the commitment by banks to the SME sector.

However, the Irish Small and Medium Enterprises Association (Isme) said the CRO was not working, saying it had dealt with only a small number of cases.

"Small business has shown its 'faith and trust' in the process by ignoring it," Isme chief executive Mark Fielding said.

"The tone and tenor of this latest report would suggest that the lack of credit is the fault of SMEs rather than the banks. This is redolent of the type of utterances from the banking sector and not the words of an office ostensibly in place to assist and advise small business."