€9bn of SME loans here are now in default – Central Bank
Published 26/06/2014 | 02:30
MORE than 40pc of outstanding SME debt at the bailed-out banks is in long-term arrears, research from the Central Bank shows.
And a quarter of loans linked to the small and medium business sector in Ireland are in default, the study found.
The data highlights the extent of the debt problem facing home-grown businesses in Ireland, with the SME sector making up about 99pc of businesses in the country.
The report showed that loans to small business across AIB, Bank of Ireland, Permanent TSB and EBS totalled €21bn in December, with an average loan size of €71,101.
The default rate on the debt was 26.05pc, with the default rate on the balance hitting 41.38pc.
And the bigger the loan, the more likely it is to be in arrears, with the highest default rates recorded in construction and hotels. Researchers at the Central Bank also found that the outstanding balance of lending to SMEs has been steadily falling since 2011.
Gross new lending to these sectors has remained between €450m and €750m per quarter since 2011, with no discernible upward trend.
Credit demand is also shown to have fallen slightly in the year to March, but it remains around the euro-area average, according to officials in Dame Street.
The Central Bank also estimated that about a sixth of Irish SMEs have high debt levels.
The Central Bank's SME Market Report shows that credit supply conditions are shown to have eased between 2011 and 2014, with rejection rates on SME credit applications falling to 20pc.
But the number of so-called discouraged borrowers – those who are not applying for credit due to the expectation that they will be refused – is significantly higher in Ireland and Greece than elsewhere in the eurozone.
The Department of FInance last month unveiled details of the new Strategic Banking Corporation of Ireland (SBCI), which will lend to small and medium businesses on favourable terms.
But the Central Bank said it remains to be seen whether the SBCI will result in more credit for SMEs, or even how its impact could be evaluated.
In contrast to the bleak picture painted by this latest research, a study by the Central Bank published last month showed that one in three businesses are completely debt free.
But the bigger the business, the greater the likelihood that it is heavily in debt.
While most small firms have debts well below their turnover level, the picture is uneven across sectors.
Hotels and restaurants are the most indebted sector, based on the debt to turnover ratio, while services sector firms, and, builders are least indebted.