Data published by the Central Bank yesterday shows that following a weak first quarter, new lending to SMEs in Ireland picked up in the second quarter.
New lending to SMEs grew by 11% year on year (yoy) in the second quarter, leaving gross lending down by 3% yoy in the first half of the year overall. Despite net lending continuing to fall on an annual basis (-3% yoy), the second quarter saw the biggest quarterly increase in net lending since 2011, with borrowing outpacing repayments by €195m, suggesting that the long period of deleveraging for Irish SMEs is almost at an end.
The data suggests that although property still accounted for the largest proportion of new lending, it acted as a drag in the first half of the year. This was due to a large fall in new lending for investment/development.
In contrast, lending for construction purposes rose strongly. Among the other larger sectors, new lending to primary industries grew by 1% yoy, while lending to the wholesale and retail trade increased by 6% yoy in the first half of the year.
Most lending to businesses in Ireland is to larger enterprises, where net lending has been increasing since 2015. In the second quarter, net lending increased by €2.2bn on an annual basis, the largest increase since the series began in 2011.
According to Goodbody Stockbrokers, "It is clear from the lending data that SMEs continue to be more cautious from a lending standpoint than larger businesses. This is not a surprise given the economic risks that continue to exist, particularly in relation to Brexit. Nevertheless, the data still points to modest growth in the SME loan book, something that the banks will very much welcome."