Irish SMEs still shouldering €30.7 billion in property debt

Research indicates property-related lending to sector still constitutes largest share of loans

Fri, Jun 6, 2014, 12:53

Property-related lending to Irish SMEs still constitutes the largest share of outstanding loans to the sector.

Figures from the Central Bank reveal SMEs were shouldering €30.7 billion in property debt at the end of March this year, which corresponded to 56 per cent of all loans to the sector.

Lending to SMEs for the purposes of buying property fell by 2.3 per cent or €708 million during the first quarter of 2014, compared with a decline of 1.7 per cent in the previous quarter.

On annual basis, however, it fell by 5 per cent , resulting in a net flow of minus €1.6 billion, where repayments exceeded drawdowns.

Economist Morgan Kelly has warned that upcoming stress-testing of Irish banks will further tighten lending conditions here, potentially wiping out many SMEs who are burdened with debts from the property boom era.

The Central Bank data show non-property lending to SMEs registered a marginal increase of 0.1 per cent during the quarter to stand at €24.6 billion overall.

In annual terms, however, there was a fall of 4.5 per cent, suggesting the flow of credit to the sector remains a problem.

As part of series of measures to stimulate Europe’s faltering economy, the European Central Bank yesterday announced the establishment of a four-year €400 billion to boost bank lending to businesses in the euro zone.

The Central Bank figures show lending to SMEs amounted to €2 billion during the quarter, with the agriculture sector accounting for the largest share (€151 million), followed by wholesale/retail trade and repairs (€ 92 million).

Irish SMEs accounted for 39 per cent of all credit advanced to businesses.

The outstanding amount of credit advanced to Irish SMEs was €66.7 billion at the end of March, which represented a decrease of 1.3 per cent on the previous quarter.

The total amount of credit outstanding to Irish businesses stood at €172.5 billion as of the end of March, with more than half of this accounted for by the financial intermediation sector, including securitisation vehicles.

Irish based businesses saw their deposits by 1.8 billion or 1.9 per cent during the third quarter, to stand at 93.5 billion.

On an annual basis, there was a fall in deposits of 1.2 per cent, compared to an annual increase of 18.8 per cent at the end of last year.

The financial intermediation sector mainly accounted for the developments in annual deposits, with a decline of €2.3 billion over the year. This change was due to base effects, driven by a transaction in March last year related to the liquidation of the Irish Bank Resolution Corporation (IBRC).