New lending to SMEs down 12% as interest rates on outstanding loans rise

Gross new lending to SMEs was down 12 per cent to €989 million in the third quarter as interest rates on outstanding loans continued to increase, new data from the Central Bank shows.

It comes as a separate survey points to growing confidence among small and medium firms. According to the Association of Chartered Certified Accountants, 80 per cent of small and medium firms are either as confident in the prospects for the year ahead as they were last year or more so. And two-thirds expect to be at least as profitable in 2024.

The survey, conducted among 150 accountants who advise thousands of SMEs, also found that 32 per cent of small businesses plan to increase their staff numbers next year. Just 6 per cent plan on reducing headcount.

The outstanding stock of SME credit on banks’ balance sheets stood at €18.2 billion at the end of the quarter, the Central Bank said.

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Net lending to SMEs was down €136 million, reversing the increase seen in the same quarter of 2022. Annually, repayments exceeded new lending by €979 million over the year to the end of September, making it the largest annual decline in almost three years.

The sector showing the largest annual decline in new lending was property, where it amounted to €771 million, down from €1.1 billion a year earlier.

Over the year to end-September, gross new lending to SMEs was €3.8 billion, continuing the annual decline seen in previous years.

Estimated repayments over the 12 months were €4.8 billion, the highest level of annual repayments since the end of 2020.

The weighted average interest rates on outstanding SME loans continued to increase over the quarter and year, to stand at 5.23 per cent. This represents an increase of 10 basis points (0.1 of a percentage point) and 147 basis points when compared to the previous quarter and year respectively.

However, the interest rate on new SME loan drawdowns decreased by 16 basis points over the quarter – reversing the quarterly increases seen in the previous four consecutive quarters – and now stands at 5.31 per cent.

SME interest rates on new loans fell across a majority of sectors in the third quarter but there were increases seen within the information and communication, hospitality, and education sectors.

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