Most vulnerable Irish firms need as much €5.7bn in liquidity to survive Covid-19 lockdown: Central Bank

The stark findings reveal that businesses will need between €2.4bn and €5.7bn in some form of liquidity -- on top of the wage-supports and self-employed business owners already announced -- if the most vulnerable SMEs are to survive the lockdown.
Most vulnerable Irish firms need as much €5.7bn in liquidity to survive Covid-19 lockdown: Central Bank
The Central Bank says that if the most vulnerable SMEs are to survive the lockdown, up to €5.7bn in liquidity supports may be required

The most vulnerable small firms in Ireland employing hundreds of thousands of people will likely need as much as €5.7bn in so-called liquidity supports if they are to survive the 12-weeks of the Covid-19 lockdown, according to major research from the Central Bank.

The stark findings reveal that businesses will need between €2.4bn and €5.7bn in some form of liquidity -- on top of the wage-supports and self-employed business owners already announced -- if the most vulnerable SMEs are to survive the lockdown.

And the Central Bank research, "SME liquidity during the Covid-19 shock", warns that some small firms "will likely fail even in the presence of liquidity support".

It says that 96,000 small firms employing 418,000 people "in highly affected sectors" and 224,000 firms employing 768,000 people "in moderately or highly affected sectors".

Large parts of the wholesale and retail sector "and the entire accommodation and food sector" are the most vulnerable, it finds.

That’s because small firms despite getting Government supports for their wage costs still face fixed costs, such as rates and commercial rents.

"While short-term liquidity support is likely to prove essential to some firms, others will likely fail even in the presence of liquidity support," according to researchers Niall McGeever, John McQuinn and Samantha Myers.

"In addition, the longer the period over which the containment measures last, the greater the likelihood that liquidity presses may evolve into solvency pressures," the researchers warn.

The term liquidity is used to describe the amount of funds small businesses will most likely need from new credit to make up for the fact that hey have had no sales and income over three months to pay bills other than wage costs.

It is normally used to describe the amount they will need in new ultra-cheap bank loans guaranteed by the Government or other direct Government supports by way of grants and tax credits.

Government-guaranteed loans are a common feature of the Covid-19 public supports many governments across Europe have already provided during the crisis. Irish business groups and leading experts have said that the Government here will need to do the same.

However, the scheme in the North and in Britain whereby businesses can tap loans that are 80%-backed by the London government has been criticised.

Goodbody chief economist Dermot O’Leary said the Central Bank appears to be preparing the evidence for officials here to sanction some sort of new policy response in terms or guaranteed loans or other supports.

"It is encouraging that there appears to be a coordinated approach," he said.

"It is different from the high profile big bank announcements we have seen in other countries and that is not necessarily a bad thing -- as long as it is followed through," he said. "SMEs will experience some for of cash crunches that will worsen over the coming weeks and months and this is evidence that policymakers are well aware of that," he said.

Mr O’Leary said the research doesn’t touch on the possibility of the Government taking direct shareholdings in firms for new measures to benefit from the recovery.

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