SMEs pay down debt but interest rates remain high
SME interest rates fell in the final months of the year, as new drawdowns by non-financial firms totalled €3.4bn for 2015.
The Central Bank noted, however, that interest rates faced by some sectors remained higher than average, despite a 0.58% decline over the year.
Commenting on the Central Bank’s latest credit and deposits update, Irish Small and Medium Enterprises (ISME) chief executive, Mark Fielding, said interest rates here remained out of kilter with European norms.
“The interest rates, while dropping, are still way above our counterparts across the EU, and, without any competition in the banking sphere, this will persist,” Mr Fielding said.
An analysis by the Irish Examiner, earlier this year, showed that Irish SMEs were paying more than twice the eurozone average for credit and that they faced the highest interest rates of any country in the currency union.
Gross, new lending to non-financial, non-property-related SMEs increased in 2015. New loans drawn down by those firms totalled €2.6bn — a 10.2% increase on 2014.
SMEs in primary industries, such as agriculture, drew down the largest share of new loans, after a 10% increase.
The final quarter of the year represented the primary sector’s highest drawdown of new loans since the Central Bank began recording such data, in 2010.
SMEs also continued to pay-down overhanging debt, as last year came to a close, reducing the overall level of outstanding debt.
Credit-to-core SMEs — those not in the property or financial sectors — fell by 9.5% over 2015, as €2bn more was repaid than drawn-down. This was driven largely by hotels, restaurants, and SMEs operating in the retail and wholesale sector.
As firms continue to work their way through the legacy debts under which they’ve struggled since the financial crash, the challenge now is to ensure their future viability, Mr Fielding said.
“Many SMEs have been grappling with their debt overhang and are slowly, but surely, sorting out their problems… The difficulty with some SMEs, now, is that their debt has been sold to ‘venture funds’, who have different priorities, and the danger is that many SMEs will be put under, because of timing, just as they get their business back to profitability.
“Government still have a job to do in ensuring that viable businesses, and their jobs, are not lost because of vulture funds’ rush to call in their investment. There is an onus on the rescued banks to assist in refinancing viable, but cash-shy SMEs,” Mr Fielding said.
As a result of firms paying-down existing debts, bank credit to Irish SMEs declined for the 14th consecutive quarter, in the final three months of the year.
The outstanding stock of SME credit decreased by 3% over Q4, 2015, to €43.5bn.
This represented an annual decrease of 10.7% over 2015. Of the outstanding debt, €15.7bn is tied up in the property sector, across real estate and construction firms.
Property-related lending to SMEs no longer constitutes the largest share of outstanding credit, however, due to loan sales and large repayments.
Deposits from non-financial, Irish, private-sector companies increased marginally, by €311m, in Q4, and by 8% on an annual basis.
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