Joe Flaherty (Longford-Westmeath, Fianna Fail)
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67. To ask the Minister for Finance if he will report on the SME credit demand survey 2023, which he published in April; and if he will make a statement on the matter. [22684/24]

Pádraig O'Sullivan (Cork North Central, Fianna Fail)
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Will the Minister report on the SME credit demand survey 2023 which was published in April, and will he make a statement on it?

Michael McGrath (Cork South Central, Fianna Fail)
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I thank Deputy O'Sullivan for the question. SMEs are the lifeblood of the Irish economy and they account for 99.8% of all businesses in Ireland, along with 69.2% of all employment in the business economy. Recognising the importance of SMEs to Ireland, my Department has regularly carried out SME credit demand surveys since 2011. These surveys are critical tools to understand how the sector is performing and how needs for credit are being met.

The survey series provides an overview of the economic context and Government support measures. It includes detailed findings on business performance, investment activity and company assets. The survey series also provides the Government with vital information on which to base policy initiatives that support businesses to manage rising costs and further invest. This includes the temporary business energy support scheme, the Ukraine credit guarantee scheme and the growth and sustainability loan scheme among a range of other policy measures.

The most recent SME credit demand survey in its series, published in April 2024, focuses on the timeframe from January 2023 to December 2023. Unlike previous surveys conducted biannually, this was the first survey to cover an entire calendar year, in line with a recommendation from the retail banking review of 2022. This survey was conducted by Ipsos B&A on behalf of my Department. This survey on SME credit demand in Ireland is the most extensive, encompassing more than 1,500 participants engaged in detailed conversations. It provides a thorough overview of the SME sector in Ireland, ensuring that micro-enterprises, small businesses and medium-sized enterprises are proportionately represented based on their prevalence in the country.

The survey reveals a nuanced picture of SME trading performance in 2023. While 52% of SMEs reported increased turnover, this figure is slightly lower than the previous year. Notably, profitability saw an uptick, with 74% of SMEs reporting profits, compared to 68% in the prior period. This suggests a focus on cost management and efficiency. Credit demand remained steady, with 18%, or nearly one in five, of SMEs seeking bank finance in 2023.

The primary reason for not seeking credit was the availability of sufficient internal funds, at 76%, indicating a degree of financial prudence among SMEs. Demand for non-bank finance rose to 9%, reflecting a diversification of funding sources. The decline rate for applications held steady at 11%, with the main reason being failure to meet lending criteria. A total of 36% of applicants were required to provide collateral, a significant increase from the previous period. I can provide more information in response to Deputy O'Sullivan.

Pádraig O'Sullivan (Cork North Central, Fianna Fail)
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I thank the Minister. I know the Minister understands the importance of SMEs to the Irish economy. As he rightly outlined in his response, more than 99% of all business in the State, and almost 70% of all employment in the business economy, is provided by SMEs. The SME credit survey is a crucial component in ascertaining how business is performing, how investment is being undertaken and how accessible credit is to ensure that jobs and the economy continued to grow.

The Minister recently welcomed the survey, as he has outlined. I would like to hear the Minister's thoughts on several specific points that have been raised. A total of 16% of SMEs reported investing in climate-related activities during 2023, with the highest in energy efficiency followed by less polluting technologies. What are the Minister's thoughts on this? How will we try to increase this trend and increase the number of people investing in business and in upgrading energy efficiency? The report stated that 53% of SMEs reported increasing their prices during 2023. What steps is the Minister taking to address the trend of rising costs and prices?

Michael McGrath (Cork South Central, Fianna Fail)
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I thank Deputy O'Sullivan. Overall the credit demand survey for 2023 paints a complex picture. It is multifaceted because, of course, SMEs operate in a range of sectors. Overall the results of the survey once again underline the resilience in the face of economic challenges. There is a steady demand for credit. It also highlights evolving investment patterns, one of which Deputy O'Sullivan correctly highlighted with regard to investment in climate and energy efficiency measures.

We continue to have work to do to highlight the supports that are there including, for example, the capital allowance regime we have for investment in energy efficient equipment. In recent budgets further changes have been made to make these schemes more attractive. Ultimately, we want to support businesses to decarbonise and reduce their own energy costs and make them more competitive. With regard to prices, the environment of inflation and the input costs that businesses have faced throughout last year and over the past number of years has forced many of them, reluctantly in some cases, to increase prices.

However, we are now in a much better place in terms of the moderation of inflation. That is beginning to work its way through to the data and hopefully will result in some businesses not being forced to increase prices.

Pádraig O'Sullivan (Cork North Central, Fianna Fail)
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As the Minister rightly said, there is probably a lag in the data as well insofar as there are 12 months, and interest rates and such are coming down. As the Minister rightly highlighted, businesses have proven to be resilient in that 82% of them said they had no change or had increased their turnover while 88% were either in profit or had broken even. "Resilience" is the right word to describe what businesses have endured and what they continue to demonstrate. The Minister also mentioned how average interest rates reported by SMEs rose from 5.13% in April to September of 2022, to over 7.2% in 2023. Could the Minister give any indication as to whether this trend has continued into 2024 and how he is going to mitigate the worst effects?

Michael McGrath (Cork South Central, Fianna Fail)
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The Deputy's question is about interest rates facing SMEs. The changes in the interest rates being paid by SMEs were directly linked to the monetary policy environment, the ten successive interest rate increases we had from the ECB which worked their way through the system, in particular in respect of floating rate charges, variable rate loan products and then when it came to the re-pricing of fixed interest rate products by the commercial banks but also by the non-banks. I do not have further information on the early part of 2024 but I think that trend is likely to have continued. You would expect that by that stage, the interest rate increases would have fully worked their way through the system. We are now at a point where we expect that there will be movement in the other direction in monetary policy and interest rate decisions by the ECB including quite possibly in June in terms of the monetary policy committee meeting of the governing council. I would expect that, in the way that interest rates being charged to SMEs changed in line with increases in the ECB rate, the reverse will happen as rates begin to come down at the wholesale level.