Finance Minister Brian Lenihan has published and SME Lending Plan from AIB and Bank of Ireland in which each of them indicate an intention of making €3 billion available to SME’s in 2010/11
Which customers are likely to be in a position to use such additional resources and what impact will the provision of these facilities have on lenders? Borrowers that qualify are supposed to be exporting firms. .
An SME employs fewer than 250 persons; have a turnover of less than €50 million and a balance sheet less than €43 million.
| € Million | |
| Loans | 26,340 |
| Overdrafts | 2,833 |
| Finance and Leasing | 2,407 |
| Invoice Discounting | 700 |
| €32,280 |
This proposal indicates a potential 19% increase in credit availability
There were 33,192 applications for credit amounting to €1.854 billion in the fourth quarter of 2009; 131,500 for all of 2009. Credit applications for the fourth quarter of 2008 amounted to €2.892 billion. The approval rate is estimated to be 84%. The utilisation rate for overdrafts is 52%.
Profile of Credit Applications
| Sector | Number of Applications | Amount Sought € Million | Total Borrowing |
| Agriculture and Forestry | 9,512 | 379 | 4,150 |
| Fishing | 128 | 10 | 325 |
| Mining and quarrying | 89 | 9 | 303 |
| Manufacturing | 1,742 | 198 | 2,630 |
| Electricity, Gas and Water | 63 | 16 | 279 |
| Construction supply | 1,808 | 61 | 1,249 |
| Wholesale and repair | 4,507 | 346 | 6,954 |
| Hotels and restaurants | 1,776 | 125 | 7,327 |
| Transport, storage and communications | 1,442 | 69 | 1,512 |
| Financial intermediation | 251 | 15 | 348 |
| Real estate and business activities | 7,783 | 390 | 3,816 |
| Health and social work | 1,071 | 99 | 1,472 |
| Other community and personal services | 3,030 | 137 | 1,915 |
| TOTAL | 33,192 | 1,854 | 32,280 |
Each of these sectors has issues from a banking perspective which I will comment on in the context of the change in their overall borrowing profile between December 2005 and December 2009
Credit Trends 2005 – 2010
Resident non-government credit, excluding personal borrowing, residential mortgages and lending to the educational sector increased by 121% in this five-year period.
The following table summarises the change in each sector and the relationship between the deposits maintained in each sector and how these relate to borrowing by these sectors as a whole:
| Sector | Change in borrowing Dec 2005 – 09 | Resident Dec 2009 | Resident Credit Dec 2009 |
| Agriculture and Forestry | 1,554 | 2,496 | 4,933 |
| Fishing | -70 | 112 | 336 |
| Mining and quarrying | 177 | 294 | 415 |
| Manufacturing | 1,628 | 5,989 | 7,137 |
| Electricity, Gas and Water | 513 | 898 | 1,120 |
| Construction | 5,495 | 3,578 | 15,042 |
| Wholesale and repair | 4,867 | 4,591 | 12,591 |
| Hotels and restaurants | 3.903 | 655 | 10,905 |
| Transport, storage and communications | 781 | 3,766 | 3,005 |
| Financial intermediation | 46,540 | 45,106 | 82,676 |
| Real estate and business activities | 61,598 | 14,781 | 93,845 |
| Health and social work | 1,845 | 894 | 2,679 |
| Other community and personal services | 1,034 | 4,800 | 2,832 |
| TOTAL | €129,865 | €87,960 | €237,516 |
These sectors, in their entirety had credit outstanding of over €237 billion at the end of December 2009, a year in which our GDP reduced by 7% to €176 billion. The SME component of this, €32.2 billion was 13.5% of the overall total.
The level of credit they were responsible for increased by 121% in the previous five years. The deposits of these sectors maintained. €87.9 billion means that the overall ratio of deposits to loans was 2.7.
It is very hard to see much action in the construction sector given the collapse in demand or in the hotel and restaurant sector given the huge overcapacity as a consequence of tax breaks valued at €1 billion. Real estate is dormant and there will not be much international growth in agriculture.
Supply Perspective
The Financial Regulator has insisted that Tier 1 capital at AIB, which in common with its counterparts, is to be 8% means that additional capital of €7.4 billion is necessary by 31 December 2010. It is not yet clear where this is to come from.
AIB is the dominant force in the Irish deposit market laying claim to customer current and deposit accounts worth €52 billion of its total customer account base of €83.9 billion.
Bank of Ireland has a similar customer account total, €85 billion – but only €35 billion of this is derived in Ireland. The remainder is sourced in the UK and capital markets. Additional credit means additional capital.
AIB’s credit commitment to these sectors at 31 December 2009 and its NAMA relationship is as follows:
| Sector | Change in borrowing Dec 2005 – 09 € Million | Resident NAMA AIB Bound Loans Dec 2009 €Million |
| Agriculture and Forestry | 2,015 | 24 |
| Fishing | ||
| Mining and quarrying | ||
| Manufacturing | 3,108 | 37 |
| Electricity, Gas and Water | 844 | 64 |
| Construction and Property | 15,930 | 18,055 |
| Wholesale and repair | ||
| Hotels and restaurants | ||
| Transport, storage and communications | 2,382 | 621 |
| Financial intermediation | ||
| Real estate and business activities | ||
| Health and social work | ||
| Other community and personal services | ||
| TOTAL LOAN BOOK (IE) | €69,911 |
|
| TOTAL LOAN BOOK (GROUP) | €103,341 |
|
Bank of Ireland had an Irish loan book of €63,450 million, slightly less than that of AIB. The make-up of it was:
| Residential mortgages | 28,350 | ||
| Property and Construction | 9,450 | ||
| NAMA | 8,100 | ||
| Corporate and SME | 14,850 | ||
| Consumer | 2,700 | ||
| TOTAL LOAN BOOK (IE) | €63,450 | ||
| TOTAL LOAN BOOK (GROUP) | €119,439 |
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