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Central Bank of Ireland: SME Market Report 2020 highlights the challenges faced by firms as a result of Covid-19

July 28, 2020
  • Survey evidence suggests 24 per cent of firms had ceased trading temporarily or permanently in April but this declined to 11 per cent by May 31st
  • Credit balances were almost fully utilised in the Accommodation & Food sector in May with scope for further drawdowns of existing credit in other sectors
  • Banks report SME lending standards have tightened in the first half of the year and are also expected to tighten slightly in Quarter 3

The Central Bank of Ireland has today published its SME Market Report for 2020 with a special focus on the challenges to firms posed by Covid-19. The Report aims to provide a timely monitor of developments in the provision of credit to Irish Small and Medium Enterprises (SMEs) by financial intermediaries.

The Report finds that:

  • The shock to firms’ turnover has been large (21 per cent of firms report turnover is 75 per cent lower), but differs by sector.
  • Firms with the most constrained revenue have reduced their non-personnel costs the most, those reporting revenue declines of over 50 per cent have reduced non-personnel costs by 43 per cent. But 39 per cent of firms have not reduced costs, increasing to 60 per cent where revenues declined 10-49 per cent.
  • The Accommodation & Food sector have reduced non-personnel costs the most – 49 per cent of firms in this sector have reduced non-personnel costs by more than 50 per cent.
  • Survey evidence suggests 39 per cent of firms have unpaid invoices, amounting to around 20 per cent of 2019 revenue for the typical firm, which may pressure cash flow or amplify shocks upon company failure.
  • As many as 42 per cent of firms report changing or deferring payments to manage cash flow, increasing to 91 per cent of firms in the Accommodation & Food sector.
  • Following increases in small non-financial corporation (NFC) non-revolving loans early in the year, compared to 2019, new lending has since declined.
  • As of May, 72 per cent of SMEs reported no change in access to finance and 6 per cent of SMEs reported a decrease.
  • Smaller firms lack a bank lending relationship, particularly micro firms (36 per cent), which can help inform lenders credit assessments and support the firm’s access to finance.
  • Greater SME indebtedness in the Accommodation & Food sector (20 per cent exceeding half of turnover) may limit capacity to borrow more, but 44 per in this sector do not hold any debt, while 57 per cent of all firms do not hold any debt.
  • Some of the sectors with the largest amount of outstanding bank debt (Accommodation & Food and Wholesale & Retail) are more exposed to the shock from Covid-19.

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