Irish SMEs pay more interest than any other Eurozone nation

Small and medium-sized enterprises (SMEs) in Ireland are paying more interest for new loans of business than any of the other Eurozone members surveyed, according to new research from the Central Bank.

The figures state that business borrowers in Ireland are being charged an average of 5.5 per cent a year in interest compared with an average across the rest of the Eurozone of 3.6 per cent per annum.

This stark illustration was included in an SME Market Report published by the Central Bank last week.

It would seem there is no explanation as to why credit is so out of line with European norms and comes off the back of the controversy that continues to rumble on regarding Ireland’s standard variable rate mortgages which are twice the Eurozone average.

The report also showed that more business borrowers in Ireland have experienced rising interest rates than decreasing rates in the first half of 2015.

Once again, these figures were in stark contrast to the rest of the Eurozone where borrowing costs are beginning to fall across the board.

More worryingly, SMEs looking to take on smaller debts are paying significantly higher interest charges – around three percentage points higher than the rest of Europe.

Increased credit costs in Ireland are being attributed to the huge cost to lenders of defaulted and distressed loans which remain on their books more than seven years since the escalation of the global financial crash.

The current state-of-play is that more than one-in-five business loans in Ireland are in default, with almost 40 per cent of SME debt held by banks distressed.

The one positive from the report is the stabilised demand for credit, with only a modest increase in loan applications during the six months to the end of June 2015.

Overall stocks of SME debt fell, as boom era borrowings continue to filter through the system via repayments or write-offs.

Although borrowing for working capital is high among Irish SMEs, loan applications and borrowing for investment remains subdued.

Date published 14 Jul 2015 | Last updated 14 Jul 2015