Property loans now third of new debt for SMEs
Property-related loans accounted for 30pc of total new lending to non-financial sector SMEs last year, the Central Bank has said.
Lending to non-financial sector small and medium sized businesses jumped by over €1bn - or close to a third - in 2016 compared with the same period in 2015.
"The main driver of the increase in new lending has been loans for real estate activities which increased from €650m in 2015 to €1.2bn in 2016, accounting for 30pc of total (non-financial) SME new lending in the year," the Central Bank said, in its latest macro-financial review.
The Bank said that there has been a substantial decline in the rate of non-performing loans among SMEs, relative to its peak, across all categories of business. But there are variations.
About 30pc of construction-related lending is still non-performing, but the corresponding figure for manufacturing is below 5pc. Overall, about 10pc of SME debt is bad, around a third of the peak NPL rate.
"The workout of these NPLs will require sustained effort for some time to come," the Bank said.
The Central Bank also insisted that house prices here are not overvalued, despite rises of almost 10pc year-on-year in March and a clear shortage of supply.
Mark Cassidy, head of financial stability at the Central Bank, said the bank looks at house prices now compared to where it thinks they should.
"The work that we published at the end of last year, that we will be updating, suggests that house prices are not currently overvalued ... albeit that house price rises are quite strong," Mr Cassidy said.
The Central Bank said nationally house prices have risen 50pc since their trough in 2013, but remain 31pc below their 2007 peak.
Deputy Governor Sharon Donnery said the regulator did not believe there was overheating in areas for which the Central Bank has responsibility - such as financial stability and the financial sector. But she said there was a potential for overheating in other parts of the economy, and warned of the need for a prudent fiscal stance to be taken by the new Cabinet led by Taoiseach Leo Varadkar.
The bank also said that households remain highly indebted and vulnerable to potential interest rate hikes.
"While household debt has been declining, the sector remains highly indebted, at €143.8bn in 2016 Q4, leaving it vulnerable to a rise in interest rates," Ms Donnery said.
"Those in the 30-44 age category have high debt-to-income ratios relative to other age cohorts and by international comparison."
Ms Donnery said the overall number of mortgage arrears cases has declined by 44pc since the end of June 2013. She said almost half of mortgage arrears cases are in very long-term arrears.
The bank also warned that while the government deficit ratio continues to improve, the public debt burden, at around €42,000 per person, remains high by "historical and cross country comparison".
That leaves the State vulnerable to shocks, Ms Donnery said.
The Central Bank said the economy is projected to grow by 3.5pc and 3.2pc this year and next. The impact of Brexit on the economy is likely to be "negative and material", it added.
"The Central Bank has identified Brexit as the primary external risk to the Irish economy and the Irish financial system."