Retail and hospitality sector borrowing more money than any other

Interest rates on outstanding loans to SMEs now stand at 4.96%, according to the Central Bank

The total volume of money banks have lent to Irish SMEs stood at €14.5bn between April and June. File picture

The average interest rate charged on new loans to SMEs rose by 44 basis points during the second quarter, with the retail and hospitality sector becoming “the largest contributor to new lending”, new data from the Central Bank of Ireland shows.

While an increase was recorded across the entire SME sector, it was not uniform with some sectors seeing higher increases than others. 

According to the data, the only sector that did not see an increase was human health and social work.

The electricity, gas, steam, and air conditioning supply sector saw the highest increase in interest rates but the lending volumes were not very large.

All other economic activities saw interest rates increase by between 18 and 48 basis points.

The period between April and July coincided with a meeting of the European Central Bank (ECB) which resulted in an increase in interest rates 25 basis points over the quarter, and was increased again in September by another 25 basis points.

"Interest rates on outstanding loans to SMEs now stand at 4.96%, while interest rates on new lending stand at 5.59%," the Central Bank said.

Gross new lending during the quarter to SMEs amounted to €1.2bn, a decrease of 2.4% compared to the previous quarter and down 0.4% compared to the same period last year.

“The reduction in new lending was driven primarily by lending to the manufacturing, which was down €48m year-on-year, and construction, real estate and development activities, which was down €43m year-on-year,” the Central Bank said.

In total, the manufacturing and construction, real estate and development activities sectors borrowed around €80m and €240m during the quarter.

In contrast, new lending to retail and hospitality was up €41m to €330m, compared to last year, marking the second consecutive quarter where this sector has been the largest contributor to new lending.

The total volume of money banks have lent to Irish SMEs stood at €14.5bn between April and June.

The largest sector in terms of outstanding SME lending was retail and hospitality, which stood at €3.2bn, followed by construction, real estate and development activities’ and primary industries, which both stood at €3.1bn.

Transactions to SMEs during the quarter were “marginally net positive” as new drawdowns of new lending exceeded repayments of existing loans.

“This is the second consecutive quarter where transactions have been net positive,” the bank said.

Total transactions over the quarter amounted to €11m, down from €132m in the previous quarter.

Some sectors saw net negative transactions, such as property-related lending, down €37m and manufacturing down €17m. 

However, these were balanced out by net positive transactions in ‘primary industries, up €32m, and health and social work up €23m.