Lending to small firms down more than 5% in six months to September

THE AMOUNT of money on loan to small and medium enterprises by Irish banks declined by more than 5 per cent in the six months to the end of September, new data from the Central Bank shows.

Some €67.3 billion was outstanding to SMEs at the end of the third quarter of 2010. This compares to €69.9 billion at the end of the second quarter and €70.9 billion in the first quarter of the year.

The figures indicate that repayments on SME loans were greater than drawdowns over the period, the Central Bank said.

However, these figures include certain financial companies, such as mortgage-backed securitisation vehicles and property-related businesses. When these are excluded, lending to “core” SMEs stood at €32.5 billion at the end of the third quarter, down from €33.5 billion in the previous quarter and €34 billion at the end of quarter one.

Some €3 billion in new credit was lent to SMEs in the first three-quarters of the year, although this includes some renegotiations of existing loans.

More than two-thirds of the new loans went to “core” SMEs. However, a significant trend emerging from the figures is that agriculture and forestry was the biggest recipient of new credit in the first quarter of the year, accounting for 23.9 per cent of total new lending to the SME sector.

While hotels and restaurants represent the largest share of outstanding lending to core SMEs, at 27 per cent, they were responsible for only 10 per cent of new lending.

The wholesale/retail trade sector accounted for 18.7 per cent of all new lending to “core” SMEs.

The data found that overall, gross new lending was lower for nine of the 15 sectors in the third quarter of 2010 than in the first quarter, although the Central Bank says this is likely to be influenced by seasonal factors.

Yesterday’s figures cover the first three-quarters of 2010 and are the first from the Central Bank relating specifically to SME lending. The data replaces the Mazars reports into SME lending which were undertaken periodically from June 2009 and will be published quarterly by the Central Bank from late spring 2011.

Avine McNally, acting director of the Small Firms Association, said the decline in lending clearly showed access to credit remained a huge challenge for many small firms. She added that the decline in lending also showed that businesses “still remain uncertain about the availability of or the success of accessing the credit they require”.

Rival small business lobby group Isme said that while the number of businesses being refused loans by banks had fallen, the number of firms looking for credit had also declined.

Isme chief executive Mark Fielding said uncertainty surrounding the availability of credit to small businesses had resulted in a lower number of applications for credit.