SME lending market remains highly concentrated
According to the latest Central Bank SME Market Report for the first half of 2017, the SME lending market remains highly concentrated, despite continued reduction in the bank concentration of new lending flows. The market share of the three main lenders in new lending flows is currently 82%.
The report also provides information on credit demand, credit access, loan terms and conditions, loan default, interest rates and credit market concentration and shows that gross new lending to non-financial, non-real estate SMEs continues to grow. Annualised new lending in the first quarter 2017 was €3.6bn, a 32% increase since the first quarter 2016.
Outstanding credit to SMEs continues to contract. In the first quarter 2017, the stock of SME credit declined to €16.6bn, down 8.2% from the previous year.
The current application rate for bank finance is 20% of SME firms surveyed by the Department of Finance, which continues a downward trend in application rates from a peak of 40% in March 2013. The application rate on loans and overdrafts is lower among Irish SMEs than in two comparator groups of euro area countries. The share of finance applications accounted for by new loans, new overdrafts and leasing and hire purchase arrangements continues to grow, with a commensurate decrease in the share of applications accounted for by renewal and restructuring of existing facilities.
The report finds that investment and working capital are the most common reasons cited by Irish SMEs for financing applications. The share of Irish financing applications for investment reasons has grown from 36 to 47% over the period from September 2016 to March 2017.
The rejection rate on bank finance applications has increased from 11 to 13% over the year to March 2017. Medium-sized firms have continued to experience a fall in rejection rates, while Small and Micro firms are experiencing increases. In a euro area context, the rejection rate in Ireland is slightly higher than in two comparator country groups.
The average interest rate on loans under €250,000 is currently 5% in Ireland, down from late 2016 but remaining significantly higher than in comparator country groups. The premium paid on small versus large loans also remains substantially higher in Ireland according to the report.