UPDATE 1-Irish govt concerned by banks refusing SME credit

* Value of new SME credit applications down 42 pct -Mazars

* Demand shifts from investment to near-term working capital

(Adds comments from minister, Bank of Ireland)

DUBLIN, July 10 (Reuters) - The Irish banks which have received state capital have honoured their pledge to boost lending to small and medium businesses, but a worrying portion are still refused credit, the finance ministry said on Friday.

The deals to inject 3.5 billion euros each into top lenders Allied Irish Banks (ALBK.I) and Bank of Ireland (BKIR.I) included provisions that in return they would increase lending to SMEs to help Ireland beat its worst recession on record.

"I can confirm that this commitment has been honoured and verified by the Financial Regulator," Finance Minister Brian Lenihan said.

A report by accountancy firm Mazars, published by Lenihan on Friday, showed lending to SMEs by banks participating in the review -- excluding speculative real estate and construction -- remained steady from June 2008 to February 2009 at 34.5 billion euros.

The value of new applications for credit decreased by 42 percent, while the refusal rate ranged from 19 percent to 30 percent depending on the size of the applicant.

"The report confirms that while some SMEs are facing significant challenges accessing credit, and the sector in general is more conservative in its borrowing, nevertheless new lending is still taking place," Lenihan said.

"The proportion refused credit, especially in certain sectors, remains a concern for government."

In May, the government also set up a Credit Supply Clearing Group to identify blockages in the flow of credit and to find solutions. [ID:nLJ688782]

It also hopes to boost the availability of credit by the creation of its new National Asset Management Agency (NAMA), a "bad bank" to cleanse the banking system of risky loans with a nominal value of around 80 billion euros.

In a separate statement, Bank of Ireland, which expects 6 billion euros in charges for bad debts in the three years to March 2011, said the report showed the focus of credit demand had shifted from investment to short term working capital needs. [ID:nL3207807]

The Mazars report was based on input from Allied Irish Banks, Bank of Ireland, nationalised Anglo Irish Bank, National Irish Bank, a unit of Danske Bank (DANSKE.CO) and Ulster Bank, a member of the Royal Bank of Scotland Group (RBS.L). (Reporting by Andras Gergely; editing by Simon Jessop)