Economic Letter: The financial vulnerability of Irish Small and Medium Enterprises, 2013 to 2017

An Economic Letter by John McQuinn and Fergal McCann considers the financial position of Irish firms and finds an improving financial situation in the small and medium sized enterprise (SME) sector. The research analyses the debt-to-turnover (DTR) ratio of a representative sample of Irish SMEs over a period of four years from 2013 to 2017.

The key findings are:

• The share of highly indebted firms (those with debt exceeding turnover) has fallen from 7.8 per cent of SMEs to 2.9 per cent.
• The share of SMEs holding any debt has declined from as high as approximately three in four SMEs in September 2013 to only one in two SMEs in September 2016.
• Pockets of risk remain in the Hotels and Restaurants sector, where the DTR has hovered between 80 and 100 per cent over the four years under examination. For other sectors, the DTR among companies with debt is between 20 and 30 per cent at March 2017.
• The research indicates that, given current developments, the scope for large-scale loan defaults as a result of an economic turnaround is therefore limited to a small cohort of firms.

The views presented in Economic Letters are those of the authors and do not necessarily represent the official views of the Central Bank of Ireland.

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