Irish SMEs very reliant on bank funding - Central Bank research

Monday 07 October 2013 18.46
Central Bank research shows that Irish SMEs have been disproportionately exposed to potential weakness in the bank sector
Central Bank research shows that Irish SMEs have been disproportionately exposed to potential weakness in the bank sector

New research from the Central Bank reveals that Irish small and medium sized business are among the most reliant on banks in Europe.

This has been the case since before the financial crisis in 2008 and after it.

The research says this means that the indigenous private sector - 90% of which are SMEs - have been disproportionately exposed to potential weakness in the bank sector, relative to the rest of Europe.

The Central Bank's latest economic letter "The importance of banks in SME financing: Ireland in a European context" also finds that the share of SME firms using bank borrowing to finance either capital or working investment fell by about 50% between 2005 and 2012.

This has been replaced by trade credit, equity and internal funding.

The Central Bank says that while there is no doubt that tighter credit conditions have played a role in the switching between financial sources, the fact that firms are no longer expanding and do not require large volumes of external finance, it likely to explain some of the increase in internal financing for investment.

The research also show that Ireland has the highest share of SME firms using bank overdrafts, while they are second only behind Germany on using banks borrowings to fund working capital and investment activity.

The Central Bank states that government policy must aim to stimulate the flow of bank credit, while at the same time create well developed markets for a range of alternative financing sources to complement the role of banks in financing the SME sector in Ireland.