Almost one third of all SME loans 'in trouble'
More than 80pc of the biggest loans to hotels and restaurants are in trouble, according to a major analysis of lending to small and medium-sized enterprises (SMEs) to be published this morning.
Hoteliers, restaurateurs and builders with heavy debts are the most likely groups struggling to repay bank borrowing, according to a Central Bank report.
But the level of serious arrears among our large manufacturers will come as a surprise with more than 70pc of loans to large manufacturing companies in trouble.
The new survey is the first to examine the loan books of major banks to get a real picture of the country's struggling businesses.
While the courts have revealed problems with the country's biggest developers, the plight of SMEs, which employ two-thirds of private sector workers, is still difficult to gauge.
The survey paints a grim picture across all segments of the economy and shows there are high levels of non-payment among big borrowers even in the so-called thriving sectors of the economy.
Among the findings from the Central Bank report are:
- 30pc of all loans to SMEs are in trouble.
- The largest loans in all industries are the most likely to be behind in repayments.
- There is little difference in loan repayment rates across different regions.
- Loans in the agriculture and food sectors are most likely to be repaid.
Central Bank researchers Martina Lawless and Fergal McCann used information given by two large commercial banks to the Central Bank as part of last year's bank stress tests.
The researchers conclude that hotels and restaurants, construction and the energy and mining sectors have larger-than-average numbers of loans which are either on a "watch list", unpaid, in default or impaired.
Smaller loans appear more likely to be repaid than large loans. More than half of the biggest loans to the hotel, manufacturing and agriculture sectors are in trouble.
In total, 70pc of SME loans were being paid on time at the end of 2010. A further 18pc were categorised as on a watchlist or past payment date, while 12pc were listed as impaired.
Hotels and restaurants had the lowest share of performing loans at 49pc. Other sectors with a low share included construction (65pc), financial (66pc), manufacturing (66pc), professional and real estate (69pc) and wholesale and retail (69pc). The sector with the largest share of performing loans was agriculture at 81pc.
The researchers found there was a very clear relationship between the size of a loan and the likelihood of repayment.
Looking at all loans to SMEs, the latest research shows that more than half of the largest 10pc of loans are in trouble.
The survey found that 20pc of all SME lending went to wholesalers and shops. Another 16pc went to financial organisations while 15pc of loans went to hotels and restaurants and a further 15pc to agriculture. Loans to hotels and restaurants, along with the financial sector, tend to be much bigger than loans to other sectors