Farmers best for loan repayment, study finds

FARMERS AND those in the agricultural sector were the small businesses most likely to be paying back loans, new figures show. Hotels were the most likely to have non-performing loans.

The research, compiled by the Central Bank and published today, segments all loans to small and medium-size enterprises (SMEs) into those that are either “performing”, “watch list or past due” or “default or impaired”.

Titled The Irish SME Lending Market – A Snapshot, December 2010, the report shows that, across all small businesses, the sector with the largest share of performing loans was agriculture with 81 per cent of loans performing.

The data used in the analysis comes from a large sample of SME loans gathered for use in the March 2011 Financial Measures Programme Report. The data was also used in the process of stress testing the Irish banking system.

It shows that, in total, 70 per cent of SME loans were performing at end of 2010, with 18 per cent categorised as watchlist or past due and 12 per cent classed as impaired.

To the end of 2010, the largest sectors in terms of the Irish financial institutions’ SME exposure were wholesale and retail at 20 per cent, financial at 16 per cent, hotels and restaurants at 15 per cent and agriculture 15 per cent.

Of these sectors, loans to the hotels and restaurants and financial sectors were of the largest value but were also the poorest performing.

Just 49 per cent of loans to SMEs in the hotel and restaurant sector were performing while 65 per cent of loans to small business in the financial sector and construction sector were performing.

In other sectors, 66 per cent of loans to the small businesses in the manufacturing sector were performing, with 69 per cent of loans to businesses in the professional, real estate sector, wholesale and retail sectors performing.

In analysing the share of performing loans across loan value, the study finds that the lowest shares of performing loans were among the largest loans, with a share of performing loans below 50 per cent in the top 10 per cent of loans.

Among the smallest 75 per cent of loans by value, the share of performing was between 70 and 85 per cent, with the share falling as loans get larger.

By sector, it is shown that most sectors follow the pattern whereby among the largest value loans, the share of performing loans falls below 60 and even 50 per cent.

In the hotels and restaurants sector, the share of performing loans in the top 20 per cent of loans by value is below 30 per cent with a similar figure in the construction sector.

The data compares the loan books of two large Irish banks at the end of 2010. The authors of the report, which will be presented at a Central Bank conference on March 2nd, say the loan books “show significant losses both incurred and potential across all sectors.” Losses are highest in the hotels, restaurants, construction and retail sector.