SME loans half of mooted €58bn

The total amount of credit outstanding to SMEs in the real economy is €24.5bn and not the figure of €58bn that has been circulating in the media over the past week, according to the Central Bank.

In lecture by the UCD economist Morgan Kelly last weekend, he said the SME sector is carrying €58bn of debt and €33bn of this total relates to property debt.

Professor Kelly argued that when the ECB carries out its stress tests later this year the banks would be forced to move on this property debt, which would presage widespread business failures and lead to a spike in unemployment.

However, the Central Bank figures contradict Mr Kelly’s argument. At the end of December last year, there was €55.9bn in credit outstanding to non-financial SMEs. But only €24.516bn of this belongs to SMEs in the real economy. These are the firms that create the vast bulk of employment.

There is no further breakdown of how much of this €24.51bn relates to property debt, but it is considerably lower than the €33bn cited by Mr Kelly. The ‘wholesale and retail sectors’; ‘hotels and restaurants’; and, ‘agriculture sectors’ account for most of the €24.51bn in outstanding debt. According to another Central Bank report, new lending to the ‘wholesale and retail’ and ‘hotels and restaurant’ sectors remains weak. However, new lending to the agri sector is growing.

A further €29.84bn of the €55.9bn in SME debt is accounted for by SMEs in the ‘real estate activities’ sector. These are classified as SMEs because their assets and employment figures are below a certain threshold but these firms have been in trouble for years and the banks would have taken significant loss provisions against these debts.

Finance Minister Michael Noonan said because of Professor Kelly’s track record, his views had to be taken seriously.