Small hotels most in debt according to Central Bank study
Overall debt levels for SMEs have fallen but small hotels and restaurants remain the most vulnerable, according to a new Central Bank study.
SMEs hold almost €16bn in debt, down sharply from almost €27.4bn over six years ago, according to researchers John McQuinn and Fergal McCann.
But small hotel and restaurant firms were “particularly vulnerable” with the largest share of the most indebted firms.
Dublin firms carried less debt than other firms across the country.
The default rates on all SME loans which were more than 40% “have improved since 2013 through a combination of loan combination of loan sales, write-offs and loan cures” but “vulnerability remains a relevant concern in the Irish SME sector”, the researchers said.
“The accumulation of unsustainable levels of debt by firms was a key contributing factor to the financial crisis experienced in Ireland from 2008. A regular monitoring of indebtedness levels of real economy firms in Ireland is now seen as a crucial component of the Central Bank’s financial stability toolkit,” the researchers said.
“Using data drawn from a representative sample, this economic letter demonstrates that financial vulnerability has reduced substantially among SMEs in Ireland between 2013 and 2017, with the reduction broad-based across SME characteristics.
“Highly-indebted firms with debt exceeding turnover have fallen in importance from 7.8% of SMEs to 2.9% of SMEs. In addition, as many as one-in-two SMEs no longer hold any debt, an increase from one in four SMEs approximately in September 2013,” according to the study.
Neil McDonnell, the head of business group Isme, said that small restaurants and hotels outside of Dublin were under pressure because of the short season.
And all SMEs still faced a number of challenges involving debt, financing, and costs, he said. As property prices rise, Mr McDonnell said banks were squeezing SME business owners who had committed to personal guarantees against loans.
Despite having traded through the slump, banks were increasing pressure on SMEs to sell up properties which had been put forward as security for loans.
“We have people ringing us saying that perversely as asset prices are rising that their personal guarantees are being called in,” the Isme chief said.
