Businesses awaiting certainty before taking on new loans – Isme
Isme chief executive Neil McDonnell said businesses were awaiting updates on when the economy would reopen. Picture: Sasko Lazarov
Business group Isme said there was unlikely to be a significant increase in borrowing within the SME sector until businesses have certainty on 2021 and the lifting of pandemic restrictions.
It was responding to figures released by the Central Bank that show gross new lending advanced to SMEs in the final three months of 2020 was €1.4bn, significantly below the €1.6bn loaned to businesses in the same period in 2019.
For all of 2020, new lending to core SMEs totalled €2.9bn, reflecting a year-on-year decline of €704m.
Isme chief executive Neil McDonnell told the he did not see a return to significant credit activity in the short term.
The hotel and restaurant sectors saw the most significant reduction in lending, falling back 68.4 per cent compared to the fourth quarter of 2019.
The figures from the Central Bank also show SMEs are charged more for new lending than banks charge small firms on existing credit. The average interest rates on outstanding loans fell four points over the final quarter to 3.45 per cent. There was a decline of 14 basis points over the year.
However, the interest rate on new SME loan drawdowns stands at 3.78 per cent. SME interest rates varied between sectors, with higher-than-average rates charged to the primary industries and transportation/storage sectors
Annually, loan repayments by all SMEs were just under €5.5bn, which was the lowest annual repayment level seen since 2014. The Central Bank said repayment levels would have been lower if it was not for the agreement of payment breaks.
Isme's Bank Watch survey covering the same three-month period of 2020 found demand for credit from its members was at 29%, up 18% from Q3 but that loan refusal rates increased from 29% to 37%.
The Government will make a decision on whether to ease lockdown restrictions on April 5. However, it has indicated that any reduction will be limited. Tánaiste Leo Varadkar said considerations for April 5 include a relaxation of the 5km rule and the likely return of the construction sector.
