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
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
- 64% of Irish private sector workers are in indigenous,
non-exporting ﬁrms. 57% of all workers work in indigenous, non-exporting
- 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.
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
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.
Ireland remains biggest debtor of the western world