Bank lending remains crucial for SMEs, says Cyril Roux

Bank lending will remain a crucial source of funding for SMEs despite attempts to develop alternative forms of finance, according to Central Bank deputy governor Cyril Roux.

Even though a large number of SMEs acquired unsustainable property- related debt during the boom, the improving economy is having a positive impact on loan arrears, Mr Roux said.

The Central Bank has strict guidelines in place to ensure that the banks have appropriate strategies to deal with SME loan arrears, he added.

Mr Roux was speaking to the Leinster Society of Chartered Accountants at its annual lunch in Dublin yesterday.

The banks are taking three approaches to resolving SME debt issues, he said: n Businesses that have survived “the worst of the storm” and are now in a position to take advantage of the recovering economy; n The large cohort of SMEs that have viable underlying businesses but which are lumbered with non-core property debts. About two-thirds of these types of loans have good prospects of returning to full viability, but it will take time, Mr Roux said. The resolution of such loans will need a good deal of understanding and patience from the banks, which may require the disposal of property assets as well as other concessions; n Where the loan is either not viable and/or the borrower refuses to engage, “the ultimate resolution will arise either through consensual agreement or through legal recourse”, Mr Roux said.

Overall, SME loan arrears are reducing, but from very high levels, he added.

In the past, Irish SMEs have been heavily reliant on bank lending, but now a number of non-bank forms of finance have emerged.

Peer-to-peer lending is more suitable for micro- finance initiatives and the issuance of marketable securities is unsuitable for most SMEs because of scale, he noted.

However, direct commercial lending by investment funds could be a lucrative source of funding in the future.

“That being said, SMEs and banks are to remain economic bedfellows,” Mr Roux said.