SME financing in Ireland revisited : exploring the long shadow of the financial crisis

The functioning of credit markets and their impact on economic activity came to the fore in Ireland following the 2007 global financial crisis. The major challenges in the banking sector led to a severe contraction in credit availability, in particularly for small- and medium-sized firms. This negatively affected their investment activity and employment. While the economy has recovered, credit demand has not recovered to the same extent and lending volumes have remained muted. Thus after 15 years of economic recovery, and a multitude of policy interventions, the credit landscape continues to puzzle. This research attempts to revisit issues around credit access for Irish firms and explores both demand and supply in a euro area context. We find that credit demand for bank loans is lower in Ireland than in other countries and trade credit demand remains higher. Using scenario analysis, we show this is partly driven by higher interest rates and lower competition in the banking sector than in other countries. We also find rejection rates have fallen; this likely reflects low demand, lower credit risk as well as improved bank lending conditions.