Sunday 21 January 2018

SME lending up 5pc but cost of credit still much higher than European average

The Central Bank in Dublin
The Central Bank in Dublin
Colm Kelpie

Colm Kelpie

Lending to SMEs is increasing, rising by more than 5pc over the summer months last year compared with the same period in 2015, new data shows.

The cost of credit remains much higher than the European average, although the average rate has fallen from 5.9pc to 5.5pc, according to the figures from the Central Bank.

Lending growth is highest in the manufacturing, hotels and restaurants and construction sectors, although declines were recorded in the wholesale, retail and services sectors.

Loan performance is improving. "The latest Central Bank of Ireland loan level data shows that 24pc of outstanding SME outstanding balances are in default, down from 41pc in 2013," the Central Bank report found.

"The share of performing loans transitioning to default in the preceding six months has also declined since 2013 and is currently at 1.7pc."

But rejection rates are also rising. After declines in the previous report, the latest survey shows an increase in rejection rates.

Across all SME categories and finance products, the rejection rate has increased to 16pc, from 11pc in the previous survey.

Increases in rejection have been reported across all businesses, but particularly for medium-sized firms. Micro firms show the highest rates of rejection.

Compared with the third-quarter of 2015, annualised new lending in the July to September period last year has increased in manufacturing by 37pc, in hotels and restaurants by 25pc and in construction by 14pc.

Interest rates are higher for smaller loans, the Central Bank data found.

The average interest rate for SMEs in the latest six months of data, for April to September, is 5.5pc, which is 3.2 percentage points higher than that for loans between €250,000 and €1m.

The cost of credit for businesses here has long been a bone of contention. It was flagged more than a year ago by former Central Bank Governor Patrick Honohan. Mr Honohan argued that interest rates for small and medium-sized businesses had come down everywhere in Europe, except Ireland, he said, speaking shortly before his retirement from office.

Responding to the SME Market Report, PIBA, the country's largest group of financial brokers, said it pointed to a serious lack of competition in the Irish lending market.

"This is not good for a country well on the road to recovery," said Rachel McGovern, Chief Operations Officer at the group which represents almost 900 member firms.

"More needs to be done to support Irish SMEs grow, and the State needs an urgent analysis of what is keeping competitive forces out of the Irish lending market," she added.

Irish Independent

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