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News : Irish Economy Last Updated: Jun 27, 2014 - 3:38 PM


Irish SME firms' weighted default rate at 41%; Credit situation like Greece
By Michael Hennigan, Finfacts founder and editor
Jun 26, 2014 - 7:22 AM

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Irish SME firms' credit situation has been at a standstill since 2011 and the situation is closer to Greece,  Italy, Spain and Portugal than to European countries with the most favourable conditions. The default rate is 26% when measured by the number of loans, and 41% when weighted by loan balance.

The Central Bank of Ireland says in a report published today [pdf] that the outstanding balance of lending to SMEs has been steadily falling since 2011, with this pattern observable among all the major sectors of the non-financial, non-real-estate economy. Gross new lending flows to these sectors have remained between €450 and €750m per quarter since 2011 with no discernible upward trend.

The Bank says the default rate is highest for SMEs in the Construction, Hotels and Restaurants and Personal (Private Households) sectors, and is shown to increase among the largest 25% of loans.

SME (small and medium size) firms are defined as sole traders or companies with employment up to 249 and whose annual turnover does not exceed €50m or whose annual balance sheet does not exceed €43m. This is the standard EU definition of an SME:

  • Micro: < 10 employees;
  • Small: 10−49 employees;
  • Medium: 50−249 employees.

SMEs are a vital part of the Irish private sector employment base:

  • 64% of Irish private sector workers are in indigenous, non-exporting firms. 57% of all workers work in indigenous, non-exporting SMEs;
  • Huge amount of work force work in Hotels and Restaurants, Wholesale and Retail, Business and Professional Services.

Today's report notes that credit supply conditions are shown to have eased in the period 2011-2014, with rejection rates on SME credit applications falling from 30 to 20% between March 2011 and March 2014, and a steady increase in the percentage of firms reporting that the size of loan available has increased. It says that in a European context, Irish SME credit conditions remain closer to those of Greece, Italy, Spain and Portugal than to those countries with the most favourable conditions.

The share of discouraged borrowers (those not applying for credit due to the expectation that they will be refused) is significantly higher in Ireland and Greece than elsewhere in the Eurozone.

Last month the Central Bank reported that Irish SMEs held about €56bn of debt on their books at the end of last year and one third had no debt.

Today's report focuses on SMEs excludes both the financial intermediation and property-related sectors, and it says that there were loans of €21bn in the SME lending data set at December 2013, with an average and median (mid-point where there is 50% of the sample above the level and 50% below) loan size of €71,101 and €9,954, respectively.

Total credit for the SME market, excluding both the financial intermediation and property-related sectors, is shown to have fallen continually since mid-2011. The report says at end-2013 lending to firms in this category accounted for 37% of total SME credit, with the remaining 63% accounted for by lending to firms in the financial intermediation and property related sectors.

The Central Bank points out that the Government announced the creation of the Strategic Banking Corporation of Ireland, which has funds of €500m for lending to SMEs through domestic banks.

Finfacts 2014: Ireland remains biggest debtor of the western world

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