HALF OF ALL LOANS to small and medium-sized businesses in Ireland are impaired, a leading regulator at the Central Bank has said.

Fiona Muldoon, the director of credit institution supervision, told a conference in Tralee that Irish banks had lent €50 billion to Irish small and medium-sized enterprises (SMEs) – and that about half of that amount was now impaired.

Muldoon was critical of the progress made by banks in facing up to one of their biggest crises, while remarking that SME lending amounted to very little of current lending from banks.

SMEs borrowed €2.7 billion last year, “a very small fraction of the overall lending balance sheet of the banks operating in this jurisdiction,” Muldoon said.

Muldoon – who is the bookies’ favourite to succeed Matthew Elderfield as Financial Regulator – said the outlook for SME lending was still poor, as banks continued to record losses which meant they were less likely to offer credit.

“Given 70 per cent of people in private sector employment are employed by SMEs, there is a further direct knock-on for these employees and past employees into the whole area of household debt and mortgage arrears in particular,” she said.

Muldoon said the high level of loan arrears for SMEs was highly linked to the property sector, as SMEs had a high level of property loans.

“In effect, in Ireland – literally and figuratively – all roads live to property,” she said.

Muldoon said there was a clear need to break the interdependency between small businesses and their proprietors, and that the Central Bank would focus this year to ensure “that the governance and execution framework of the SME support units in our banks in adequate”.