Food and hotel companies among biggest holders of bad loans in State

Companies in the food and accommodation sector have among the highest level of bad loans in the Republic, with 16.5 per cent of such borrowings classified as non-performing at the end of last year, according to a new study.

Still, real estate loans out to small- and medium-sized enterprises (SMEs) topped the non-performing loans (NPLs) table, at 19.3 per cent, followed by construction, at 18.4 per cent, and mining and quarrying, at 16.9 per cent, according to the data, compiled by Central Bank economist Niall McGeever.

The ratio problem among SMEs in general declined to 11.1 per cent – or €13.8 billion – in December from 17.5 per cent six months earlier, driven as previously-restructured loans having built up a sufficient track record of meeting scheduled payments to be reclassified as performing, and as banks continued to sell off some of their worst loans, according to the report.

“The recent Irish financial crisis and the deep recession that followed were associated with a large increase in non-performing loan balances at Irish banks,” said Mr McGeever.

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“By December 2013, 32 per cent of loan balances at the five main Irish retail banks were non-performing. The picture looked even worse for small business lending. In a sample of three major banks, over 40 per cent of Irish SME loan balances were non-performing in December 2013.”

Significant progress

Mr McGeever's figures are based on data from AIB, Bank of Ireland and Ulster Bank, who account for 90 per cent of Irish bank lending to SMEs.

While the banks in the Republic have made significant progress in lowering their NPLs ratio, it stood at 8.5 per cent last December, leaving it among the highest ratios in Europe. Most of the banks are targeting a lowering of their NPL ratios to 5 per cent by the end of this year, aided by loan sales.

The country’s banks have been looking to accelerate the pace of decline in NPLs in recent times by selling of soured mortgages. Last week, Ulster Bank agreed to sell €800 million of mortgages, mainly issued on family homes, to US distressed debt specialist CarVal Investors.

Bank of Ireland sold a €250 million buy-to-let portfolio to Cerberus in August, while Permanent TSB struck a deal to sell mortgages with a net book value of €274 million to Lone Star’s Start Mortgages unit last month. AIB is preparing to offload thousands of distressed mortgages secured on family homes next year.