OVER ONE-THIRD of lending to the small and medium-sized business sector, representing €11 billion, is distressed, according to a survey by consultants Mazars.
Five banks – Bank of Ireland, AIB, Ulster Bank, Anglo Irish Bank and National Irish Bank – provided lending data for the study, which was collated by the Irish Banking Federation (IBF).
The research shows that just over €32 billion was on loan to the SME sector in December 2009. Thirty-five per cent of this – equating to just over €11 billion – is overdue. The figure has almost doubled since June 2008. Within this distressed category, 22 per cent are termed “watchlist” loans, ie loans which are 30 to 90 days overdue; 13 per cent are impaired, ie more than 90 days overdue.
The report noted the “continuing distress in credit quality of the SME loan book”. In particular it said the 5 per cent increase in impaired loans to SMEs between the third and fourth quarter of 2009 was a cause of concern.
A breakdown of the total lending figure to SMEs – which does not include lending for “speculative construction” activities – shows that lending to the hotel and restaurant sector constituted the largest proportion of the €32.3 billion, with €7.3 billion outstanding to that sector.
The agriculture, hunting and forestry industries and real estate, renting and related businesses were the other major borrowers, with €4.1 billion and €3.8 billion outstanding to the sectors respectively.
The Mazars report is one of the only sources of information on the status and health of SME-specific loans. Figures on SME lending provided by individual banks and the Central Bank are typically conflated with lending figures for larger corporates.
A spokeswoman for the Central Bank said yesterday that the level of loan impairments revealed would have no impact on the amount of capital the banks need to repair their balance sheets.
The Central Bank has told the main banks to raise capital in order to be able to absorb expected losses on bad loans over the coming years.
She said that the Financial Regulator and the Central Bank were supplied with information on lending and loan impairments from the banks at least on a quarterly basis, and that the regulator had taken these into account, in addition to implementing additional buffers, when announcing the capital requirement for banks last month.
Meanwhile, yesterday’s report showed that the level of lending to SMEs continued to decline in the final quarter of last year, falling by 1.2 per cent on a quarterly basis.
However, the report stressed that four out of five SME credit applications, with a total value of some €1.6 billion, were approved in the quarter.
In terms of credit applications, the report found a slight increase in the number of applications from small businesses between the third and fourth quarter of 2009, although overall the number of applications was 36 per cent lower compared to the same period last year.
The Small Firms Association said that the report “clearly shows that access to credit continues to be problematic”, with 16 per cent of viable businesses refused credit.
Isme, the representative body for the small business sector, strongly criticised the report, in particular the role played by the IBF in its compilation.
Isme’s Mark Fielding said the report was “misleading and dangerous”, and was based on information supplied by the banks, with no input from the SME sector.
Dera McLoughlin, partner at Mazars and author of the report, rejected Mark Fielding’s comments. “Mazars is an international accounting firm with an excellent reputation for independence and integrity. This report is an independent report which has its genesis in the bank recapitalisation programme.”
