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
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:
- Incidences of extremely high indebtedness are
not as common in Irish SMEs as might be expected given the difficulties of
Irish SME loan repayments.
- One third of Irish SMEs carry no debt.
- The majority of SMEs have relatively low DT
ratios, with the share of SMEs with a DT of greater than a third being
- The share of SMEs with a DT of greater than
one is 7%. This number is highest for medium-sized firms (greater than 50
employees) at 12%.
- The Hotels and Restaurants sector has the
highest share of highly indebted SMEs, while the Business and Administrative
and Construction sectors have the lowest share.