Banks call for the State to guarantee loans to keep SMEs from going under

Employment and output at Irish factories plunged again in April, providing new evidence of the dire economic crisis as Ireland’s main banking group called for the State to guarantee loans for banks to provide small businesses at low cost.

The latest AIB Purchasing Managers’ Index reported “a deepening downturn” for manufacturers as orders dropped across the world lead to a large shakeout of jobs.

The survey which is based on up-to-date reports from purchasing managers posted a reading of only 36 in the month, when any reading below 50 means that manufacturing is contracting.

The Irish survey is one of many readings of manufacturing across the world and is closely watched because Ireland is home to many multinationals which rely on the health of global economy.

“The 12-month outlook weakened further in April as companies expected a recession in the aftermath of the coronavirus crisis,” according to the survey.

Meanwhile, the Banking & Payments Federation Ireland (BPFI), said State-guaranteed loans will be needed for small firms “if they are to stand a chance of survival and recovery in the months ahead”.

The group represents the five main banks, AIB, Bank of Ireland, Ulster Bank, Permanent TSB, and KBC Bank Ireland, as well as some of the servicing agents for the so-called vulture funds.

Last week, the Central Bank estimated that small firms will need €5.7bn in so-called liquidity measures which might include State-backed loans, while the BPFI puts the figure at up to €8bn, which includes a wider range of medium-sized companies.

BPFI wants a 90% guarantee on loans by the State for very small, or micro firms, and guarantees of 80% for other SMEs.

It also confirmed that the three-month payment breaks for bank customers have been extended to six months following agreement by the Central Bank.

The industry-wide plan was first reported by the Irish Examiner earlier this month.