Irish bank lending to SMEs still falling

Irish bank lending to the SME sector continues to shrink, according to the Central Bank.

The latest report from the Central Bank found lending to SMEs by Irish banks fell by €390m over the second quarter of the year and by €1.2bn over the 12 months until the end of June.

The latest Central Bank figures chime with recent surveys which found the Irish SME was starved of credit. A survey by ISME, the lobby group representing small businesses found that one in every two SME loan applications had been rejected.

A report by two Central Bank economists in August found that, because of an unwillingness of Irish banks to lend, the SME sector faced some of the most challenging credit conditions in the eurozone.

The Irish Banking Federation rejected the report and blamed a lack of demand for the low levels of lending.

The IMF, in its Article IV review released yesterday, recommended that the European Stability Mechanism take temporary control of the Irish banks in an effort to stabilise the sector and get Irish banks lending again.

According to the Central Bank’s Trends in Business Credit and Deposits, Q2, 2012 report released yesterday, the total amount of new lending to non-financial and non-property related SMEs over the second quarter of the year was €459m. The amount of credit outstanding with SMEs at the end of June was €60.3bn, 1% lower than the first quarter of the year and 2.9% down on year-ago levels.

However, there were marginal increases in SME lending in three sectors over the second quarter. Loans to the manufacturing sector grew €18m; the water supply, sewerage, waste management, and remediation grew by €11m; and the education sector saw a €3m increase in lending.

Of the €459m in new lending over the second three months of the year, €138m went to the agriculture sector; €77m went into the wholesale and retail sector; and €48m went into the business and administration services sector. The remaining €47m was loaned to manufacturing.

There was a total of €33.7bn in credit outstanding to SMEs in the property sector at the end of the second quarter, which is 55.9% of all SME credit, although it is down 1.6% compared with the end of Jun 2011.

Irish banks had extended a total of €213.6bn to the private sector at the end of June. Roughly 55% of this total “was with respect to the financial inter-mediation sector, which would include holdings of debt securities issued by the Nama master special purpose vehicle and other financial vehicle corporations”.