The Central Bank has published a Behind the Data and Research Technical Paper that examines the impact of Covid-19 on borrowers and businesses.

A number of resources for mortgage and SME borrowers experiencing financial distress have also been published. These resources include an explainer video for SMEs and updated FAQs for SMEs and mortgage borrowers.

The explainer provides an accessible overview of the SME Regulations, which regulated firms must follow when managing financial distress for SMEs. The updated FAQs for SMEs and mortgage borrowers explain the protections that apply to borrowers experiencing financial distress.

The Behind the Data report, Forbearance during the Covid-19 crisis in 2021: Who has needed lenders’ support?, authored by Stephen Sweeney and Allan Kearns, looks at loans granted forbearance between December 2020 and September 2021.

It finds that retail banks issued forbearance to borrowers on €4.7bn of loans during this period, 79% of which was to businesses. This represented 12% and 10% of banks’ outstanding corporate and SME loans.

In Association with

Sectoral data show that the crisis has mostly affected the Real Estate, Accommodation & Food service, and Arts, Entertainment & Recreation sectors. These sectors account for 83% of forbearance granted to businesses during the period.

The data indicates that some borrowers, who had initially returned to the original repayment schedule following a payment break, have subsequently needed new forbearance supports in 2021.

These findings are complemented by the RTP report,  SME Viability in the Covid-19 Recovery, authored by Fergal McCann, Niall McGeever and Fang Yao.

The report uses survey data to consider the implications of the economic recovery for the financial health of small businesses. Modelling out to 2024 predicts that financial distress among firms is expected to fall from a peak of 12% in 2020 to 7% by 2024.

The RTP report also estimates that in the absence of direct government financial supports, 15% of firms would have been financially distressed during the pandemic, and potentially up to 30% if SMEs had been obliged to meet all operating losses using only pre-existing cash balances.

The Central Bank paper finds that the majority of firms that are expected to remain distressed at the end of the scenario window are those that were distressed before the start of the pandemic. The size of this cohort is estimated at one in 20 of all SMEs.

Due to the strength of the forecasted recovery and the design of support policies, the view from the Central Bank economists is that the withdrawal of government supports will not adversely affect a large cohort of firms.

However, in the event of a partial recovery only, sustained loss-making may over time lead to elevated levels of distress in the retail and hospitality sectors.

Lender Monitoring

The CBI’s Research Technical Paper also notes that should there be a tightening of external financing, financial distress in 2024 could increase from 7% to 13%.

“This finding highlights the importance of an adequate provision of liquidity financing from lenders to ensure that viable but challenged SMEs can trade through the recovery from the unprecedented shock related to the pandemic,” said a Central Bank statement.

Deputy Governor Sharon Donnery (pictured) commented:  “The issue of distressed debt remains a key focus for the Central Bank. We expect regulated firms to continue to support viable businesses and borrowers through the challenges posed by Covid-19. It is critically important that lenders reappraise themselves with the expectations outlined in our Dear CEO letter of November 2020.

“We encourage any borrower experiencing financial difficulty to engage with their lender as early as possible. Strong protections are in place to support borrowers during times of distress, and the resources we have published, including a new Explainer video for SMEs, provide guidance to mortgage borrowers and businesses.”