One-in-five SME loans are in trouble, says IBF chief
ONE-in-five loans to small and medium-sized businesses is in trouble, the Irish Banking Federation (IBF) revealed yesterday.
The increasing number of bad loans among businesses as well as the rising cost of credit and slowing economic growth means that borrowing will be more difficult in future, IBF boss Pat Farrell warned yesterday during a speech to accountants.
"The remarkable levels of growth that this country enjoyed in the earlier years of this decade were fuelled on the easy availability of cheap credit," Mr Farrell told the Leinster Society of Chartered Accountants. "This has changed. Credit will never be as cheap again."
Mr Farrell's comments came a day after Central Bank governor Patrick Honohan criticised banks for not lending more to business and suggesting that banks had forgotten how to evaluate business loans during the property boom when vast amounts of lending were channelled to developers. Mr Farrell denied that lending to companies is declining, noting that the total loan book to SMEs has remained steady at around €32.7bn over the past few years. Companies made 70,000 loan applications and borrowed more than €2.6bn in loans, financing and leasing last year, he added. Three-quarters of all commercial loan application were approved by banks last year, he added.
The IBF supports the idea of a government-backed SME loan guarantee scheme to help small businesses "as they seek to manage their way through the current turbulence". The reality is that "SMEs are vital in driving future economic growth, and the banking sector and government have a responsibility to assist SMEs in this regard."
In future, loans for property may not be so easy to obtain, he added. Banks, citizens and businesses must all "seriously consider how to proceed in terms of our deeply-held obsession with property", he added.