Loans cost Irish SMEs twice the Eurozone average rate

Irish SMEs are paying more than twice the eurozone average for credit and are faced with the highest interest rates of any country in the currency union.

As businesses continue to pay the price for the lack of competition in the banking sector, they are being forced to fork out far more than their European peers for loans as interest rates remain stubbornly high despite recent improvements in the profitability of the largest Irish lenders.

ECB data shows the average interest rate charged on SME loans — of €250,000 or less — is 6.56% in Ireland. This rate is far and away the most expensive in the eurozone with Slovakia’s 5.07% the next highest among countries for which data is available.

At 2.28%, French SMEs enjoy credit almost three times cheaper than their Irish counterparts, while Austrian rates are lower again.

SME interest rates charged in other countries include the following.

  • Germany: 3.25%
  • Italy: 3.25%
  • Spain: 3.37%
  • Netherlands: 3.61%
  • Finland: 4.03%

At a time when SME lending is becoming cheaper across the EU, Ireland is one of just three countries to see the cost of credit increase in the past year.

Isme chief executive Mark Fielding says banks must be allowed turn a profit and make a proper return on their investments but small business owners should not be picking up the tab for it.

“This should not be at the expense of the Irish SME sector, which continues to be so blatantly exploited by the banks, as confirmed by the interest rate figures,” he said.

“The lack of competition in business banking in Ireland makes small business a soft touch for the banks in their efforts to maintain supernormal profits.”

The European Commission, in its latest post-bailout report, reiterated the poor state of competition in the Irish banking sector.

Along with the large proportion of non-performing loans and low-yielding assets the banks hold, the commission highlighted the lack of competition as one of the main reasons for interest rates being so out of kilter with the European average.

“Business customers are paying the price of the very weak level of competition in the Irish banking sector,” said Fianna Fáil finance spokesman, Michael McGrath.

Fianna Fáil finance spokesman, Michael McGrath

“With the contraction of the banking market, the dominance of two pillar banks, Bank of Ireland and Allied Irish Banks, is again apparent. This lack of competition is leading to high costs for businesses in terms of interest rates, fees and charges. As AIB is returned to the private sector over the next five years it is vital that there is a parallel strategy to ensure that a dynamic banking sector is in place.

“Eight years on from the onset of the financial crisis there has been relatively little attention paid to the shape of the banking sector which Ireland needs as it emerges from the crisis.”

Not only are the country’s 200,000 or so SMEs paying much more for credit than their European peers, they are also paying a far higher price than bigger companies.

While this is common across the EU, the difference between what large and small companies are charged is greater in Ireland than anywhere else in the eurozone.

Loans worth more than €1m carry an interest rate of 2.62% in the Irish market.

The 3.94% differential between loans worth in excess of €1m and SME loans of less than €250,000 is again more than twice the euro area average.

The Government has attempted to make cheaper credit available to SMEs through the Strategic Banking Corporation of Ireland (SBCI) which began lending last March.

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