Three lenders account for 86 per cent of new lending flows in first quarter. New lending to small and medium-sized businesses in the Republic rose by 2.7 per cent in the year to March.
According to the SME market report from the Central Bank for the first quarter of the year, gross new lending increased 2.7 per cent over the previous 12 months, driven by primary industries (11 per cent) and hotels and restaurants (3.7 per cent), with declines in other sectors.
It means that non-property related lending to SMEs stood at €16.2 billion as of the end of the first quarter.
The figures also show how a lack of competition in lending means that three lenders accounted for 86 per cent of new lending flows in the first quarter, but this concentration is nonetheless weakening, and has trended downwards since the first quarter of 2016, the Central Bank said.
With new forms of SME finance now available on the market, including peer-to-peer lending and invoice financing, many SMEs are no longer looking for support from their banks. In March, for example, the figures show that Irish SMEs applied for loans and overdrafts at about half the rate of SMEs in comparator countries.
Rejection rates
Irish SMEs also face high rejection rates, with a rate of 17 per cent in September 2017, “a gradual increase” since March 2016, the Central Bank said. “Micro” firms faced the biggest rejection rate, at 28 per cent, compared with 11 and 15 per cent for small and medium-sized firms, respectively.
“Bank rejection rates for SME loans and/or overdrafts in Ireland are more than twice the rates in comparator countries,” the Central Bank said.
However, the default rate for SME loans remains high, with the figures showing that as of December 2017 the default rate for SMEs was 22.6 per cent, weighted by loan size.
While venture capital funds raised €994 million in 2017, a fifth of the value of SME bank financing, the Central Bank said this funding was limited to a small number of firms operating in high-technology sectors.
Responding to the figures Marc O’Dwyer, chief executive of accounting software company Big Red Cloud, said access to credit was still “a significant challenge faced by many small businesses in Ireland”.
“The rejection rates revealed in this report point to a problem in the Irish market – particularly when compared with our European counterparts,” he said, but added that while the three mainstream banks currently account for 86 per cent of new lending flows, “this figure is falling and I believe it will continue to fall substantially as businesses look elsewhere for their capital injections”.
Big Red Cloud has just raised more than €30,000 in its latest peer-to-peer lending campaign with Flender.
Source: www.irishtimes.com
