TWO-thirds of bad loans in Ireland relate to commercial lending, including property-related debt involving small and medium enterprises.
Of those, one third have a poor prospect of being recovered. The stark figures were set out by financial regulator Cyril Roux yesterday, laying bare the difficulties facing many businesses.
At the Chartered Accountants Ireland Leinster Society lunch, Mr Roux said most of the public attention has focused on bad mortgage loans despite it being a smaller share of the overall amount of distressed loans.
"Although this is understandable given the difficult and personal borrower issues involved in mortgage arrears, the scale of the issues in the banks' commercial lending books are significantly larger than the amounts at stake in mortgage lending," said Mr Roux.
"Approximately two-thirds of loans have good prospects of returning to viability, but, and here's the point, it will take time."
Mr Roux said the State's banks, after an initial ad hoc response to the debt crisis, are now trying to resolve distressed commercial loan portfolios.
He said many businesses have excessive property debt tied to a core business that is viable.
The resolution of these loans requires the separation of the viable business from the legacy property debt, he suggested.
And he said that where a loan is not viable or where the borrower is not co-operating, the ultimate resolution will arise either through mutual agreement, or via the courts.
But he added that the number of distressed business loans is falling, and is set to drop further over the rest of this year.
"While there are encouraging signs, it is important not to be complacent," he said.
"Commercial loans still make up the sizeable majority of distressed loans in Ireland and will take time to work through, even with an improving economic outlook."
The remarks come as the International Monetary Fund (IMF) gave an upbeat assessment of the Irish economy, declaring it was now "firing on all cylinders".
But it warned that while they were declining, non-performing loans still account for a quarter of outstanding debt.
The Fund also said that the water charges debate had become less heated, and called for the pace of fiscal adjustment to be phased and steady from next year onwards.
It also cautioned on public sector wage increases and recommended restraint in health, education and social protection spending.
"Elections are due no later than early April 2016. Polls in early 2015 show a rise in support for the coalition parties and the water charges issue appears to becoming less heated after the November 2014 steps to lower fees and set a cap to reduce uncertainty about future charges," the Fund said, in a report on Ireland.
And in a boost for the Government, the IMF said it backs the Government's drive for flexibility at EU level on budgets.
The Government wants the rules on how much Ireland can spend on investment to be softened ahead of the next Budget, claiming faster than expected growth here should allow Finance Minister Michael Noonan to spend more if he chooses.
The European Commission sets limits to how much a country can spend based on its growth rate. But Mr Noonan has said the Commission is using an outdated growth rate.
The IMF said it welcomes the Government's attempts to refine aspects of the European Commission methodology.
It also said Ireland's growth is expected to remain robust this year, bolstered by the European Central Bank's recently announced bond buying programme.
Mr Noonan and Public Expenditure and Reform Minister Brendan Howlin said the IMF views will be carefully considered.