Noonan dismisses concerns over Irish SME debt

Minister for Finance Michael Noonan has dismissed concerns about the level of SME debt carried by Irish businesses, amid concern in Brussels over the issue.

It is understood that the high levels of property-related debt incurred by Irish businesses was discussed during last week’s first post-bailout visit by troika inspectors to Dublin.

“The SMEs are being sorted out. Bank of Ireland say they have over 90 per cent of the SME debt restructured and AIB claim they have 65 per cent restructured so, as far as we’re addressing the legacy imbalances from the recession, the SMEs would be far down the list,” Mr Noonan said yesterday in Brussels.

Irish SMEs held about €56 billion of debt on their books at the end of last year, according to the Central Bank.

Legacy debt
It is understood the issue of Ireland's legacy debt, including the high level of SME indebtedness, was discussed by euro zone finance ministers on Monday night, when Ireland was one of five euro zone countries whose macroeconomic imbalances were discussed at the euro group meeting in Brussels.

The European Commission’s spring economic forecast, published on Monday, also highlighted the matter. In an analysis notable for the absence of any reference to mortgage arrears, the forecast noted “the effect of legacy debts” and impaired access to finance “continue to pose risks for SMEs”.

“The successful resolution of non-performing loans is a precondition for the restoration of credit channels and for sustaining the economic recovery beyond the short term,” it said.

“I think that the commission is correct in its analysis but everybody would think that any countries coming out of a bailout would have imbalances,” Mr Noonan said yesterday.

The report also noted that “impaired credit channels” are also a risk to the construction sector, which if not addressed could lead to “bottlenecks” in the supply of new residential and commercial property.

A detailed report on Ireland’s first post-programme surveillance visit will be published by the commission before the summer. Spain is due to receive its full post-bailout report today.

Separately, Ireland will also be included in the commission’s country-specific recommendations for member states to be published on June 2nd – the first time the State will be included in the process. It sets out strict limits on budget deficit targets and structural reforms for the EU’s 28 member states.

Direct bank recapitalisation
Mr Noonan also confirmed that a discussion on direct bank recapitalisation which took place at Monday's euro group meeting will have no impact on Ireland's case for retroactive direct recapitalisation for AIB and Bank of Ireland.

Euro group president Jeroen Dijsselbloem said he had secured support from ministers at the group to sanction direct bank recapitalisation by the European Stability Mechanism next year, once 8 per cent of liabilities and national resolution funds are first tapped. This would be a temporary measure until the bank resolution and recovery directive, which sets out a strict hierarchy of creditors to be bailed in, is in place in 2016.

“The regulation contains the same reference to retroactive as it did and wasn’t disturbed in any way by yesterday’s discussion,” Mr Noonan said.

Any political decision on retroactive direct recapitalisation will not take place until the end of this year at the earliest.