Irish SME loans are costliest in Europe

Irish SME loans are costliest in Europe

By Eamon Quinn

The interest rates Irish banks charge Irish SMEs are “substantially” higher than the rates banks elsewhere in Europe charge their SMEs, and the gap may be worsening, according to the latest Central Bank bulletin on small firms.

The regulator, in its twice-yearly ‘SME Market Report’, also said applications by SMEs here, for loans and overdrafts, were “considerably lower” than elsewhere in the eurozone, while rejection rates in Ireland have swung higher, “once again”, and the concentration of the SME loans market in the hands of a few banks was also deepening, “with fewer banks holding an ever-larger market share”.

It costs an average of 5% for an Irish SME to borrow €250,000 from a bank, compared with only 3.3% across most of Europe, said the Central Bank report, which is based on lending by four banks — Allied Irish Banks, Bank of Ireland, Permanent TSB, and Ulster Bank. 

Even though it runs counter to the purposes of the ECB’s policy of bond-buying programme, which has kept eurozone wholesale rates for banks at rock-bottom levels, Irish banks have long-charged huge premiums on retail rates for SMEs, as well as new-home buyers. The report also shows that SMEs here are penalised compared with their large counterparts, and even large, Irish-based companies pay more for their loans than the rest of Europe.

By region, SMEs in the mid-west and west have the worst default rates, while those in the midlands and south-west have the lowest levels of defaults. And, by industry, SMEs in construction, and in hotels and restaurants, have the highest default rates.

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