SMEs remain ‘a drag’ on business lending growth

SMEs remain ‘a drag’ on business lending growth
Minister of State at the Department of Finance, Public Expenditure and Reform Michael D’Arcy

Small companies remain “a drag” on business lending growth, it has been claimed, as increased repayments cancel out rising rates of new lending.

Gross new lending to ‘core’ SMEs rose by almost 23%, year-on-year, to €849m in the third quarter of the year, new figures from the Central Bank show. However, repayments by core SMEs rose by €166m to €1.3bn.

“Despite this increased new lending, overall credit balances reduced annually by 3.5% on higher repayments,” said Davy.

Even with overall business lending trends showing a first annual increase in credit growth since 2009, the SME sector “remains a drag”, Davy said.

“Despite a downward trend in new lending rates to SMEs, the back-book continues to modestly increase, which we attribute to the work-out of SME non-performing loans,” Davy said.

The Economic and Social Research Institute (ESRI) recently warned of the need for careful monitoring of SME lending trends, after noting the recent acceleration in lending, particularly for construction-related firms, and highlighting the potential for a build-up of credit leading to vulnerabilities in the market.

An additional €75m in funding has been made available for SMEs, via a six-year lending facility from the Strategic Banking Corporation of Ireland and Finance Ireland. It follows an initial €51m in funding agreed in 2015 and now fully drawn down.

This package is significant as it provides additional targeted funding to SMEs for investment in machinery and vehicles that small businesses need to meet the demands of the growing economy,” said Minister of State at the Department of Finance, Public Expenditure and Reform Michael D’Arcy.

“A modern growing economy requires funding through bank and non-bank sources and Finance Ireland is an example of the Strategic Banking Corporation of Ireland’s effectiveness in increasing the range of options open to SMEs,” he said. Corporation chief executive Nick Ashmore said the funding “will help drive competition in Irish SME lending, making it easier and cheaper for them to access the finance they need to succeed.”

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