€875m of SME loans 'vulnerable', bank warns
SMALL businesses that have taken out term loans and use overdraft facilities as finance account for over 90pc of the €875m in loans classified as "high vulnerability", according to new research by the Central Bank of Ireland.
The survey, covering €12bn of loans made to SMEs by AIB, Bank of Ireland and Permanent TSB, found that 7.3pc of total performing balances were in this high risk category.
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"Accommodation & food and wholesale & retail borrowers account for a large share of high vulnerability balances, while borrowers in the agriculture, forestry & fishing and manufacturing sectors are under-represented relative to their share of outstanding credit," economist Niall McGeever wrote in the report.
The report said 10pc of term loans, which accounted for 70pc of balances, were vulnerable. A similar figure among overdrafts were similarly classified. Term loans originating in 2005-6, the period immediately before the financial crisis, and 2013-14, the period immediately after it, had the highest proportion of vulnerable loans.
Agriculture, food, forestry, accommodation and wholesale and retail accounted for half of all the loan balances, in part reflecting the preponderance of domestic businesses in the economy whereas tech and manufacturing are dominated by foreign investors.
Dr McGeever noted that SMEs had deleveraged significantly since the financial crisis and that the number of these businesses with no debt had risen to 50pc by 2017 from a quarter in 2013. Average debt to turnover had fallen to 31pc from 48pc in the same period.
Small businesses pay higher interest rates than those in the rest of the euro area, according to the National Competitiveness Council. It found that Irish loans of less than €250,000 had an average interest rate of 5.5pc compared with just 2.2pc in the euro area.