04 May 2021 | 09.02 am
The Expanding Role Of Non-Bank Lenders
Most lending for property development
04 May 2021 | 09.02 am
Non-bank lenders play a key role in funding SMEs in Ireland, according to the Central Bank, providing €2.1 billion in 2019 and €1.6 billion last year.
The information comes in the latest of the bank’s Behind The Data series, The role of non-bank lenders in financing Irish SMEs, and shows that banks provided €9.5 billion in funding over the same period compared to the non-bank total of €3.7 billion.
Non-bank lenders tend to specialise in specific sectors or product lines (e.g. leasing), which means the importance of non-banks for each economic sector varies significantly. Lending to real estate SMEs had the largest share, at €1.8 billion, over 2019 and 2020.
The report was compiled by Tiernan Heffernan, Barra McCarthy, Rory McElligott and Conall Scollard, who found that the non-banks also account for a high share of funding for wholesale and retail, heavily concentrated in stocking finance for car dealers, and one of the few sectors to see growth in lending in 2020.
Primary industry (including agriculture), hotels and manufacturing sectors are much more reliant on banks for funding, with only 7% of their loans coming from non-bank lenders.
The lenders are a mixed bag and include many small lenders among the total of 63 identified by the authors. Only 22 entities lent more than €50m over the two-year period.
Many are specialists, providing specific types of loans or loans to specific types of borrowers. The two largest, asset finance and leasing, and property finance, together accounted for €2.3 billion of new lending agreements in 2019-2020. Property financing companies provide a suite of lending products to fund the development and purchase of property, and naturally have the strongest relationship with real estate SME firms.
General business lenders, that lend to many borrowers and have several types of credit products, commonly provide leasing, asset finance and property financing products among terms loans and others, and concluded loan agreements worth €1 billion in 2019 and 2020.
The ultimate owners of non-bank lenders are geographically diverse, located in North America, Europe, Asia, Australia and Ireland. Just under 90% of non-bank lending to Irish SMEs over the two-year period were from lenders with non-Irish owners, with US based asset managers being the largest owner group. These asset managers generally specialise in alternative assets, and also invest in private equity, real estate and other forms of credit.
UK financial firms accounted for the next largest cohort of parent firms. In contrast to US and UK owners, European owners tend to be non-financial firms linked to ownership of leasing and asset finance specialists – often the manufacturer of the asset being financed.
The authors say that non-banks have an important role in funding SMEs, one that is growing, but that further work will be required “to better establish the role of non-banks in credit conditions in the Irish market, in particular the resilience and sustainability of all the business models throughout the economic cycle”.
Their full report is available here.