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Irish small businesses are getting hungrier for credit

ISME warned that the extra demand must be met by new lending.

Image: Shutterstock

SMALL IRISH BUSINESSES are looking for more cash from the banks, according the research by Davy Stockbrokers.

Davy’s monthly review of AIB and Bank of Ireland shows that demand from SMEs for new credit facilities is outstripping that from other businesses.

Analyst Emer Lang wrote that “banks reported that debt restructuring, working capital accumulation and fixed investment by enterprises were all contributing to the raised demand for loans”.

Davy Source: Davy

Arrears

According to the report, Bank of Ireland has said that 90% of its SME loans were in an end-game scenario at the end of March. This figure, however, includes liquidations.

At the end of the first quarter, AIB had restructured 60% of its SME loans with another 40% in negotiation.

Figures from the banks indicate that the impairment charges for SMEs continue to fall, with Bank of Ireland putting aside €64 million in the first half of the year, down from €138 million in the second six months of 2013.

AIB’s provision for bad debts fell to €25 million from €77 million in the same period.

Welcome

Irish Small and Medium Enterprises chief executive Mark Fielding gave a guarded welcome to the upturn in deman.

“That’s good, but only as long as it’s being met by an increase in the issuing of loans. However, we’re seeing an increase in refusal rates in our second quarter survey.”

Fielding said that while things are improving in the SME segment, many businesses are yet to see the results that a general upturn in the economy would suggest.

In general, the consensus is that things are moving in the right direction but at a slower pace that the GDP figures would indicate.

Mortgages

The Davy report shows that higher interest rates charged to new and variable rate loans is going some way to offsetting the poor returns the banks are receiving from their tracker loan books.

Lang said that new lending at higher margins is “key” to boosting banks profitability.

Research by the Central Bank published earlier this month shows that the average cost of new mortgage lending in Ireland is comfortably outstripping interest rates for equivalent home loans in Europe.

Read: We’re still paying more for mortgages than the rest of Europe>

Read: There’s going to be a new bank, with no charges*, for Irish SMEs>

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Jack Horgan-Jones

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