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Irish Independent
Irish Independent
Jon Ihle

Net lending to SMEs increases as payments fall

The Central Bank of Ireland

Small and medium businesses increased net borrowing in the year to the end of September for the first time in more than a decade, according to new data from the Central Bank.

However, the increase owed more to a decline in loan repayments over the preceding 12 months than to new borrowing.

Irish banks advanced €4.4bn of new credit to SMEs in the period, a 2.4pc annual increase. Of that, €3.1bn was so-called core credit advanced for business purposes rather than property investment.

Loan drawdowns exceeded repayments by €355m from September 2021 to September 2022, representing the first recording of positive net lending to SMEs since the Central Bank began publishing the data in 2011.

But the trend of drawdowns versus repayments shows Irish businesses are slowing down the rate at which they pay off loans, which is the main cause of the net lending result.

In the third quarter of 2022 gross lending of €1.1bn was lower than the previous quarter by €27m.

Yet net lending was still positive at €154m, meaning repayments had tailed off.

For July, August and September repayments were €968m.

The Central Bank said repayments from SMEs continued to decline on an annual basis and were at their lowest since the data series began.

However, it appears that trend is largely due to dynamics in property lending, as net lending to core SMEs was €15m in the third quarter, a reversal from the negative net flow in the previous quarter. Quarterly gross new lending is still far off pre-pandemic levels.

Although borrowing trends turned positive last year, signalling that businesses were taking on debt for post-Covid economic expansion, rising interest rates since July have complicated the lending environment.

Central Bank statistics showed that SMEs were loading up on short-term debt in the form of overdrafts and credit card borrowing for much of 2022.

Data released on Wednesday showed €6.8bn in outstanding overdraft borrowing in the Irish financial system, the highest amount in seven years.

On the other side of the balance sheet, SMEs continued to sock away money during Q3 2022, though.

Deposits from enterprises engaged in core sectors increased by €895m over the quarter, to stand at €79.4bn at the end of September. 

Deposits from all Irish private-sector enterprises rose €13.3bn over the year.

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