At the end of 2013 the impairment rate (90 days past due) on Irish SME and Corporate lending by domestic banks was 32.4%, indicating significant distress in the sector, according to the Central bank. However, new research shows that the problem debt is concentrated and not as serious as it ostensibly appears for the sector as a whole that accounts for over 70% of private sector employment.
Irish SMEs held about €56bn of debt on their books at the end of last year, according to the Central Bank and today the bank published new economic research entitled 'Profiling the indebtedness of Irish SMEs' (Economic Letters Vol. 2014, No. 3).
The research by Fergal McCann uses data from the 2012 and 2013 Red C SME credit demand survey to profile the Debt to Turnover ratio (DT) for a representative sample of Irish SMEs.
The study shows that increases in DT are associated with increased default and solvency risk. It also indicates that low DT levels in SMEs do not necessarily signal strong financial health.
The key findings of the research are as follows:
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