Half the €50 billion loans to small and medium firms are non-performing, according to the head of supervision at the Central Bank.

The authority, which has set targets for banks to deal with loans to small firms which are in arrears, has said that one if its priorities for 2013 is resolving over indebtedness of SMEs.

The Central Bank's director of supervision for credit institutions, Fiona Muldoon, said many business owners were struggling with multiple buy-to-let properties.

Addressing the Cantillon conference on the economy and entrepreneurship in Tralee, she said one of the priorities was to disentangle viable debt from unsustainable property debt.

Ms Muldoon said 70% of people in the private sector were working for small and medium firms.

"When it comes to SME arrears within the banks, there are complex issues and high levels of inter-connectedness," she said.

"In many cases, family businesses borrowed to expand the business, invest in their premises and maybe a buy-to-let property for their pension. Some cases include personal guarantees or drawdowns on the family home. That same SME is now the only source of cash flow in servicing both direct and indirect debt," Ms Muldoon concluded.

Targets have been set for the banks to resolve the troubled loans by the Troika, but she said she would not be happy until they were all dealt with.

Ms Muldoon added that it would not be clear if the Irish banks would need more capital until they had worked through their non-performing loans.

''It is not yet certain as to whether the banks have enough capital to deal with all of their issues and that is because they have not yet worked through all of their issues. It is not yet possible to know with any degree of certainty that there is too much capital or too little capital in the Irish banks as they stand today,'' she stated.