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Irish firms 2nd most indebted in Europe

Monday, January 28 10:41:58

Irish firms are the second most indebted in Europe after Luxembourg when debt is measured as apcage of GDP, according to a research paper published today by the Central Bank.

However when debt is measured as apcage of their balance sheet size, NFCs in Ireland are relatively less indebted and fall below the eurozone average with the difference being made up from debt accumulated by multinationals operating here.

Results show that aggregate indicators can mask some underlying problems within particular NFC (non-financial corporations) sub-sectors and therefore the use of a single indicator for the sector as a whole, in isolation from other data, can be misleading, the research paper said.

Irish NFC debt increased from 147pc of GDP to 204pc between Q3 2008 and Q2 2012 despite the economic downturn. The rising levels of Irish NFC debt reflect the large and increasing activities of multi-national corporations (MNCs) in Ireland in recent years.

"While NFCs have significantly reduced borrowing from credit institutions through net loan repayments and loan write-downs, their borrowing from non-residents has increased substantially by 160pc between Q1 2008 and Q2 20124. This latter trend largely reflects the substantial increase in MNCs (multi-national corporations) in Ireland, it said.

A second research paper looked at aggregate housing equity withdrawal between 1978 and 2012 and found that prior to the recent housing boom, aggregate equity injection was the norm for Irish households, mainly through the repayment of mortgage debt over time.

However, the property boom saw households move from aggregate equity injection to aggregate equity withdrawal. It is estimated that aggregate equity withdrawal reached a peak of E8 billion, or 10pc of disposable income, in 2006. This trend was driven by an increase in the number and value of top-up loans, an increase in the number and value of transactions during the boom and a relaxation of credit standards leading to lower deposits, longer loan terms and increased number of interest only loans, it found.

"The decline in the property market has led to a reversal of these factors with housing equity withdrawal collapsing and reducing to its lowest levels, driven mainly by the decline in the number and value of housing transactions."