Banks cut loans to SMEs by €1.4bn last year

Lending to SMEs fell by €1.4bn, or 5%, last year, according the Central Bank.

The bank’s latest Trends in Business Credit and Deposits bulletin, published yesterday, also showed Irish banks lent 1.6%, or €431m, less to SMEs on a quarter-by-quarter basis during the final three months of 2012.

However, SMEs still accounted for 68% of total bank credit to non-property and non-financial private sector enterprises last year.

According to the Central Bank, lending to SMEs increased, marginally, in two non-financial/ property-related sectors during the final quarter of the year, namely the human health and social work sectors and the electricity, gas, steam, and air conditioning supply sector.

The banks are approving an estimated 2,000 credit applications each week, even though demand for new credit among SMEs remains relatively subdued. As of the end of December, €32.8bn of loans remained outstanding to SMEs involved in the construction and real estate sectors.

However, the headline figures in yesterday’s data related to non-property and finance-related firms and such SMEs drew down €677m in loans during the fourth quarter of 2012; the highest level in two years.

“The level of draw down of new credit facilities is the real barometer of how the SME sector is faring,” said Felix O’Regan, director of public affairs at the Irish Banking Federation.

“It is notable that this is at its highest level in two years,” said Mr O’Regan.

The IBF said the 1.6% quarterly fall in lending “reflects the fact businesses are repaying existing debt more than they are taking out new credit”.

Yesterday’s figures also show that deposits held with the Irish banks, by private sector companies, rose by just under 1%, or €742m, in stark contrast to a €2.2bn/2.8% rise in the preceding three months.