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Friday 9 December 2016

SMEs here pay higher interest for bank loans

Irish small and medium-sized enterprises (SMEs) pay the highest interest for new loans of business in any of the 15 euro members surveyed, according to new research from the Central Bank.

Business borrowers here are being charged an average of 5.5pc a year in interest in new loans of up to €250,000, compared to an average across the eurozone of 3.6pc.

The figures are included in an SME Market Report published by the Central Bank yesterday.

They are the latest stark illustration that the cost of credit here is out of line with European norms, and come on the back of the still rumbling controversy over the high cost of standard variable rate mortgages here, which are double the European norm.

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The research also found that more business borrowers here have seen interest rates rise than benefited from a decrease in the six months to the end of June. That was in contrast to experience elsewhere in the euro area.

The official European Central Bank interest rate was cut to a record 0.05pc in September last year and has remained at the same level.

One reason credit costs more in Ireland is the huge cost to lenders of defaulted and distressed loans, which remain on their books seven years after the start of the financial crash. More than one-in-five business loans here is in default, and in terms of value almost 40pc of SME debt held by the banks is distressed, the report shows.

In a positive sign for the economy, the report said demand for credit appears to have stabilised, with a modest increase in loan applications. The overall stock of SME debt declined, however, as boom-era borrowings continue to work through the system through repayments or write-offs.

Overall, loan applications and borrowing for investment remain subdued here, though borrowing for working capital is high. Rejection rates for business loans and overdrafts here are also above the euro area average.

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