SMEs face higher rates for loans as banks tighten grip on market
The Irish small and medium enterprise (SME) lending market has become increasingly concentrated in the last six months.
There are now fewer banks in Ireland holding an ever larger market share of the lending to SMEs, according to the Central Bank’s SME Market Report.
According to the data, this sentiment is applicable to both outstanding credit and new lending flows.
In addition, the data found that SMEs with loans of less than €250,000 are being hit with interest rates that are as much as three percentage points higher than those with debt of €1m or more.
And interest rates for businesses generally in Ireland remain “significantly above euro area averages”, running at around two percentage points higher than other European countries, despite the fact that this issue has been repeatedly flagged in recent years.
But the data, in particular highlights discrepancies in the interest rate charged depending on the size of the loan.
“We use rates on loans under €0.25m as a proxy for the SME cost of credit. Interest rates are higher for smaller loans,” the Central Bank said in its latest report looking at SME lending.
It went on to say that the most recent SME interest rate was “slightly higher” than in its previous report.
Overall the annual gross new lending to non-financial, non-real estate SMEs in three months to September 2017 was 24pc higher than the previous year, with the largest increases to be found in the wholesale, retail, trade and repairs sectors.
Demand from SMEs for credit during September was low, with the share of SMEs applying for bank loans at 21pc in September, according to the ECB SAFE survey.
In Ireland, just over half of SMEs reported that they did not apply for bank loans because of sufficient internal funding during the period.
However the level of SME loan rejection rates has also increased during the period, to 13.9pc in September 2017, from 8.2pc in March of last year.
The share of SMEs transitioning into default in the six months to June 2017 was 2.4pc, with the highest transition rates found in the wholesale and retail sectors.
Meanwhile, the Oireachtas Business, Enterprise and Innovation Committee heard last night that Germany’s publicly controlled banks, the Sparkassen, will take 18 months to open a first branch here once the Government amends current legislation allowing the move. The lender would need €200m in startup capital.
Harald Felzen, the project manager for Sparkasse said it could lend at rates of between 1pc ad 2pc to small businesses and enterprises, here, a fraction of rates of 5.5pc to 6.95pc charged by Irish lenders.
Mr Felzen predicted that Sparkasse’s loanbook to SMEs would reach €1.5bn after five years of operation in Ireland, if it breaks into the market here.
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