SMEs bear brunt of pandemic restrictions - AUGUST 2020 - Banking ...
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Hospitality Spending down Cash flow
hardest hit as consumers save concerns
AUGUST 2020
SMEs bear brunt
of pandemic
restrictions
Commentary
Dr Ali Uğur,
Chief Economist, BPFI
Government working was possible. During this
early stage, the Irish government
support will be introduced two schemes for
key for SMEs employees, namely, Pandemic
Unemployment Payment for
bearing brunt employees and self-employed who
lost their jobs due to the pandemic
of pandemic and the Temporary Wage Subsidy
Scheme (TWSS) which enabled
Covid-19 has led to significant employees to receive support directly
negative impact on the Irish through the payroll of employers
economy, in addition to the social affected by the pandemic. At the
and health impacts it had on the peak of the cycle, more than 1.2
society. While there are different million people were on some sort
forecasts as to the economy wide of state support payment in the
effects of Covid-19 in Ireland in 2020, Irish economy. With the gradual
all predict a serious reduction in reopening of the economy, the
GDP, ranging from 6.8% by the IMF numbers have declined significantly.
to 9% by the Central Bank of Ireland However, at the end of July, there
(CBI). More worrying, however, is the were still about 650,000 people
forecast around domestic demand, receiving state support schemes.
which is a better measure of activity
in the Irish economy. It is expected SMEs disproportionately
to decline by around 15% in 2020. affected
This compares with the 17% decline
in domestic demand that the Irish The pandemic has affected
economy experienced during the some segments of the economy
2009-2011 period. disproportionally. Small and medium
enterprises (SMEs) play a significant
Between mid-March and mid-May, role in the Irish economy, accounting
nearly the full economy was shut for nearly 99% of the total number
down other than frontline sectors as of private enterprises and 68% of all
well as sectors where remote employment in the private sector.
2
While SMEs are responsible for most were 3.5% higher than in June 2019.
of the employment in the economy, In addition, the latest Eurostat data
it is large firms that generate the show that Ireland had the highest
majority of turnover and gross value increase in retail sales volumes
added. The distribution of SMEs (excluding motor trades) in June
across the main economic sectors within the EU both on a monthly as
varies but SMEs in the Services sector well as annual basis.
account for more than 51% of all
active enterprises and around 47% of Following on significant increases
employment in this sector. Given that in retail trade in May and June, the
the labour-intensive services sectors level of sales is back above their
such as retail, food and beverage, pre-pandemic levels in February.
accommodation, tourism and travel However, the improvement is not
are the most affected sectors due broadly based where Bars (-80.4%),
to the pandemic, this creates a Books, Newspapers and Stationery
disproportionate effect on SMEs, (-38.6%), Department Stores (-17.3%),
evident in the number of business Fuel (-16.0%), Clothing, Footwear &
closures, reduced turnover, falling Textiles (-15.9%) are still below their
profits and, most of all, in terms
February level. In addition, when
of the numbers of unemployed.
we compare retail sales volumes
Revenue Commissioners data show
between April and June 2020 as
that at the end of June 2020, nearly
against the same period in 2019, we
99% of employers utilising the TWSS
see that only food businesses have
were SMEs and 76% of employees on
experienced an increase.
the scheme worked for SMEs.
Higher-frequency data as well as Businesses working to
survey and regular publications ensure cash flow
indicate that there was evidence of
some recovery during June. Given the significant drop in both
For example, an online CSO survey turnover and income, SMEs seem to
of businesses indicates that have taken a range of measures to
almost a quarter of responding manage their cash flows and reduce
enterprises had ceased trading either their costs. In a recent CSO survey,
temporarily or permanently in mid- some two-thirds of the responding
April and early May. By the end of SMEs in the accommodation and
June, that proportion had fallen to food services sector indicated that
7.9%, where 0.5% had ceased trading they took measures such as deferred
permanently while 7.4% had ceased or changed payment to suppliers, the
trading temporarily. The easing of Revenue Commissioners or property
restrictions and reopening of most related expenses. It is interesting to
retail outlets during June fuelled note that only 11.2% indicated that
a 38.3% monthly increase in the they have utilised the restart grant
volume of retail sales on a seasonally from their local authority (25.7%
adjusted basis, while retail sales
3
Retail Sales June 2020 (YoY Change)
YoY Change
10.2%
-18.1%
Ireland 10.2%
Source: Eurostat.
within the accommodation and 2019 to €24.4 billion. These were the
food sector), which seems a very highest levels of deposits in any of
low proportion given the simple those sectors since the data series
application process for this grant began in 2003, with the exception of
which essentially gives a rebate of the construction sector. In addition
the amount of commercial rates paid to improving their liquidity, most
in 2019 up to €10,000. The grant was SMEs also reduced their debt levels.
increased to €25,000 as part of the The value of outstanding credit
July stimulus package and the total contracted as businesses continued
funding increased from €300 million to deleverage. At €14 billion in March
to €550 million. 2020, outstanding credit to core
SMEs (excluding property-related
Before the pandemic, most and financial SMEs) had more halved
businesses had significantly since September 2012. In the hotels
improved their liquidity in recent and restaurants sector, the reduction
years. Key SME sectors of agriculture, was even sharper: €2.1 billion at
manufacturing, construction, March 2020, down from €5.8 billion
wholesale/retail and hotels and in September 2012. Most recent CBI
restaurants increased their deposits data show that credit utilisation has
with banks by 21% or €4.3 billion in changed little since the pandemic
4
Availing of Government Supports (June 2020)
100%
90%
80%
70%
60%
50%
40%
30%
20%
10%
59.4% 100% 55.6% 94.3% 11.2% 25.7%
0%
Availed of Revenue Temporary Restart Grant
Government support COVID-19 Wage (Local Authority)
Subsidy Scheme
All sectors Accomodation and Food Services
Source: CSO Business Impact of Covid-19 Survey.
however it is expected that SME The biggest in potential scale is
credit demand is likely to increase the yet-to-be launched €2 billion
slightly during the third quarter. In Covid-19 credit guarantee scheme
relation to access to finance, 72% through which the government plans
of responding SMEs indicated that to provide an 80% guarantee against
there was no change in their ability bank losses on qualifying loans to
to access finance during June. eligible SMEs. Credit facilities covered
will include term loans, demand
The Irish government has also loans and performance bonds with
launched various schemes to support terms of up to seven years and with
businesses affected by Covid-19. facilities between €10,000 and €1
Among the current business million. Given continued uncertainty
supports, the restart grant to help around the future outlook due to
businesses to reopen premises is the the pandemic and changing public
biggest with more than 35,000 grants health measures, it is likely that this
approved to the value of €147 million scheme will be an important part
by the end of July. While barely one in of the supports provided to SMEs
ten SMEs had used the grant, there is particularly in the third quarter of
huge potential for further growth in 2020.
the scheme.
5
Market Analysis
Anthony O’Brien,
Head of Sector Research & Analysis, BPFI
SMEs and the Shock to the system
wider economy The shutdown from mid-March
sent most economic indicators into
Over the space of two months, nosedives.
between mid-March and mid-May,
the Irish economy went from Traditional measures of economic
normality through almost complete output showed the early effects of
shutdown to the start of recovery. the restrictions, especially in the
That sharp shock to social and most vulnerable sectors. While gross
economic life is expected to have domestic product (GDP) increased
a lasting effect but the short-term by 1.2% year-on-year in Q1 2020,
effects have been devastating. the Distribution, Transport, Hotels
and Restaurants sector contracted
The year started well enough with by 3.0% and Construction by 1.6%.
the Central Statistics Office (CSO) Personal spending fell by 3.1% and
reporting a seasonally adjusted domestic capital investment by 3.6%.
monthly unemployment rate of 4.8%
in February, unchanged from January The total tax take fell by 5% year-on-
and down from 5% in February 2019. year for the period March to June, as
Tax receipts were up 14% year-on- collapsing value added tax (VAT) and
year, with income tax 15% higher and excise duties offset a sharp increase
VAT and excise duty up 5% and 3%, in corporation tax receipts.
respectively.
6
Change in Tax Revenues 2020 vs 2019
1.5
1.31
1
0.41 0.51
0.5
0.15
€bn
0.03
0
-0.5
-0.46
-0.72
-1
-1.5
-1.68
-2
Corporation Tax Income Tax VAT Excise Duty
Jan-Feb YoY Mar-Jun YoY
Source: BPFI analysis of Department of Finance data.
The Revenue Commissioners companies will also be allowed early
suspended debt collection and the carry-back of trading losses, leading
charging of interest on late payment to a refund of some corporation tax
for VAT and PAYE (Employer) paid, while the self-employed will
liabilities for the first half of 2020, be able to offset some 2020 losses
effectively enabling businesses to against 2019 profits for income tax
delay tax payments without penalty. purposes.
The government decision to reduce The seasonally adjusted
the standard rate of VAT from 23% to unemployment rate rose to 5.6%
21% for six months from September in May before dropping back to
2020 means that the decline in 5.3% in June. However, hundreds of
VAT receipts is likely to continue thousands of people also received
into 2021, with the government government support payments due
estimating the cost to the Exchequer to the pandemic.
at €440 million. Previously profitable
7
Shutting down Similarly, the KBC consumer
sentiment index showed the largest
monthly drop in confidence in its
Business activity collapsed in April 24-year history in April but received
with purchasing managers’ indices about half of that decline over the
(PMIs) for the manufacturing, following three months.
services and construction sectors all
reporting the sharpest declines on As a global pandemic, however,
record. The AIB Services PMI and the Covid-19’s impact was also global.
Ulster Bank Construction PMI both The International Monetary Fund
fell to their lowest ever levels, while (IMF) projected global real GDP in
the AIB Manufacturing PMI fell to its 2020 would fall by 4.9%, with euro
lowest levels since March 2009. While area economic output down 10.2%.
the manufacturing and construction The EU’s economic sentiment
PMIs moved into positive territory in indicator (ESI) dropped to its lowest
June, the services PMI still pointed ever level in April 2020, according to
to declining business activity with the European Commission, although
key areas such as hospitality yet it recovered over the next two
to benefit from the easing of months. The services sector took
restrictions. the hardest hit with 22 of the 26 EU
Member States - 23 of 28 if the UK
were included - for which data is
available reporting their lowest ever
levels services confidence at some
point during Q2 2020.
Accommodation and food,
which comprises hotels and
other accommodations,
restaurants and cafes, and
bars, has perhaps suffered most
under the restrictions imposed
to halt the spread of Covid-19.
8
Proportion of Irish Enterprises Ceased Trading*
100%
88.1%
90%
80%
70.8%
70%
62.2% 62.9%
60%
50%
40%
30%
23.9% 23.0%
19.7%
20%
10.6% 7.9%
10%
0%
All sectors Accommodation & Food Construction
19-Apr 31-May 28-Jun
Source: CSO, Business Impact of COVID-19. *Either temporarily or permanently.
In a stark indication of the impact accommodations, restaurants and
of Covid-19, an online CSO survey cafes, and bars, has perhaps suffered
of businesses indicates that most under the restrictions imposed
almost a quarter of responding to halt the spread of Covid-19.
enterprises had ceased trading
either temporarily or permanently in On 15 March, the government
mid-April and early May. By the end advised all bars to close and, four
of June, that proportion had fallen months later, the Vintners Federation
to 7.9% (0.5% had ceased trading of Ireland estimated that 60% of
permanently while 7.4% had ceased pubs outside Dublin were still
trading temporarily). closed as they were not operating
as restaurants. The government
Most sectors had recovered strongly deferred to reopening of all pubs,
by June. Construction activity largely bars and nightclubs – as well as size
stopped at the end of March but restrictions on organised gatherings,
the proportion of construction until at least 31 August.
businesses that had ceased trading
fell from almost 71% in mid-April to For those businesses that had
less than 20% by the end of June. reopened, social distancing and
other public health measures limited
Accommodation and food, which capacity and revenue potential.
comprises hotels and other
9Turned over It would be tempting to assign all of
SMEs’ current challenges to Covid-19,
or Brexit before that, but survey
The CSO reported the seasonally data suggests that key performance
adjusted value of monthly services indicators were already deteriorating
decreased by 22.9% in April 2020 before 2020. The Department of
compared with March. Within that, Finance’s Credit Demand Survey
accommodation reported month- suggests that the net percentage
on-month declines of 57% in March of SMEs reporting an increase in
and 92% in April. The value of food turnover had fallen from 33% in
and beverage services activities fell September 2018 to 21% a year later.
by 26% and 32% in the same two Hotel and restaurant businesses
months. showed the worst performance with
32% reporting a decrease in turnover
Business sectors with the highest in the past six months.
concentration of small and medium-
sized enterprises (SMEs) – those Similarly, the European Central Bank
businesses employing fewer than (ECB) Survey on Access to Finance
250 persons - were among the worst for SMEs (SAFE) showed that SMEs
affected by Covid-19; in particular, across the euro area were reporting
accommodation and food services, worsening turnover performances
construction, wholesale and retail since at least the period October
trade. 2018-March 2019.
Business Turnover Past Six Months
Net Percentage of Respondents Reporting Increase
70%
60%
50%
40%
30%
20%
10%
0%
Sep-15 Sep-16 Sep-17 Sep-18 Sep-19
-10%
All sectors Construction Hotels & Restaurants
Source: Department of Finance Credit Demand Survey.
10Availability The business closures that began in
March left hundreds of thousands of
of skilled workers on the payrolls of businesses
with little or no income. The pandemic
labour unemployment payment (PUP)
was introduced for those who lost
After the perennial problem of jobs due to the pandemic while the
finding customers, the biggest issue Covid-19 temporary wage subsidy
facing Irish SMEs in early 2020 was scheme (TWSS) was launched to
the availability of skilled staff or support workers whose employers
experienced managers, according to were affected by the pandemic.
the ECB’s SAFE survey, with one in
five SMEs citing this as their biggest While the official unemployment
concern. The ECB also noted that this rose modestly in the early months
was the biggest issue facing SMEs of the Covid-19 outbreak, the
across the euro area. unemployment rate adjusted to
include all PUP recipients soared to
CSO survey data suggests that 15.5% in March and 28.2% in April,
Covid-19 had affected the before falling back to 22.5% by June.
employment situation of almost
half (47%) of the population by The job prospects for younger
April 2020. Some 14% of those people dimmed with their adjusted
affected reported that they had lost unemployment rate reaching one in
employment while 33% said they three by March and more than half in
had been temporarily laid off. April and May.
Most Pressing Problems for Irish SMEs
(October 19 - March 20)
Finding customers 26.6%
Availability of skilled staff or experienced managers 18.4%
Other 15.9%
Competition 10.8%
Costs of production or labour 10.2%
Access to finance 7.3%
0% 5% 10% 15% 20% 25% 30%
Source: ECB SAFE Survey, May 2020.
11Adjusted Unemployment Rate by Age Group
60%
50% 52.8%
51.0%
45.4%
40%
30% 32.6%
28.2%
26.1%
20% 22.5%
15.5%
10%
0%
Mar-20 Apr-20 May-20 Jun-20 Mar-20 Apr-20 May-20 Jun-20
Persons aged 15-74 years Persons aged 15-24 years
Source: CSO.
The job prospects for younger
people dimmed with their
adjusted unemployment rate
reaching one in three by
March and more than half
in April and May.
12Labour pains began to fall when restrictions eased
from mid-May onwards.
Labour-intensive sectors such as
construction, hospitality and retail The construction sector was one of
have been hard hit by Covid-19, a the first to benefit from easing with
fact illustrated by the high proportion the proportion of the workforce on
of workers in those sectors on government supports falling from
government supports through 56% in the late April to 41% by early
the crisis. June and 29% by early July. The
wholesale and retail sector followed a
In early April, when the economy similar trend but with many essential
went into shutdown, about 28% of retail outlets still trading, such as
the workforce was receiving the PUP supermarket and convenience stores,
or the TWSS. That figure jumped to dependence never reached the high
37% in the week of 26 April and only levels in construction.
PUP/TWSS Recipients as % of Workforce
90%
83% 82% 83%
78% 78%
80%
70%
60% 56%
50% 48%
40% 41% 40% 39%
40% 37%
35%
33% 32% 33%
28% 29% 30%
30% 25%
20%
10%
0%
All NACE Construction Wholesale and retail trade; Accommodation
economic sectors repair of motor vehicles and food service
and motorcycles activities
05-Apr 26-Apr 07-Jun 28-Jun 12-Jul
Source: BPFI Analysis of CSO Labour Force Survey and TWSS/PUP data.
Note: The proportion is calculated as the number of PUP or TWSS recipients in each sector at the
reported date divided by the number of number of people in employment in each sector in Q1 2020.
13The construction sector was one of late July (out of a total of 287,000).
the first to benefit from easing with At the same time, the numbers
the proportion of the workforce on supported by the TWSS doubled
government supports falling from between mid-June and mid-July to
56% in late April to 41% by early June about 61,000 as businesses rehired
and 29% by early July. The wholesale workers. The sector accounted
and retail sector followed a similar for some 36% of the former PUP
trend but with many essential recipients who were receiving the
retail outlets still trading, such as TWSS by 28 July.
supermarket and convenience stores,
dependence never reached the high Both schemes are expected to
levels in construction. continue into 2021. An Employment
Wage Support Scheme will succeed
By contrast, some four out of five the TWSS and run until April 2021,
jobs in the accommodation and with new firms operating in impacted
food service sector have been lost or sectors becoming eligible. The
supported with government subsidy. government expects the scheme to
Some 121,000 workers in the sector support around 350,000 jobs into
were receiving PUP payments by the beginning of 2021. The PUP,
the end of April. The numbers have which had been due to close in
fallen significantly since restrictions August, will be extended until April
eased at the end of June, with about 2021, although it will close to new
64,000 in the sector on the PUP by claimants in September 2020.
Number of Former PUP Recipients
Supported by TWSS (28 July)
21,800 Accommodation and food service activities
30,500 Wholesale and Retail Trade;
Repair of Motor Vehicles and motorcycles
Construction
6,900 Manufacturing
Other Sectors
9,200
15,900
Source: Department of Employment Affairs and Social Protection.
14Closer to home closer to home. That suggests that
Dublin could see slower recovery
in key sectors such as restaurants
CSO survey data also points to other and bars, and Google Covid-19
employment effects with about one community mobility data seems to
in three of those whose employment support that theory.
was affected by Covid-19 starting to
work remotely in April 2020, while Google mobility data indicates that
12% increased the number of hours visits to retail and recreation outlets
they worked remotely. such as restaurants, cafes, shopping
centres and cinemas fell sharply
Some 4% indicated that they had from mid-March relative to the
to take paid leave while 7% said baseline of 3 January to 6 February,
they had to take unpaid leave. The as did attendance at workplaces.
proportion taking unpaid leave rose While the recovery began from early
to 13% for those aged 55-65 years May, visits to retail and recreation
and 11% for those 65 years of age outlets recovered more quickly than
or more. workplace visits. The data suggests a
very strong correlation between retail
The increase in working from home and recreation and workplace visits
means that consumers are spending at 0.94.
Change in Visits from Baseline
(3 Jan - 6 Feb)
10
0
-10
-20
-30
-40
-50
-60
-70
-80
-90
Retail and recreation - National Retail and Recreation - Dublin
Workplaces - National Workplaces - Dublin
Source: Google Community Mobility Reports – data extracted 23 July. Weekends and public holidays excluded.
15Crucially, the data suggests that visits (about €619) in the case of wholesale
to Dublin workplaces were still less and retail and less than half (€366)
than half (51% less) than the base for accommodation and food service
line by 17 July, compared with 41% workers. Both sectors saw better
less nationally. Unsurprisingly, while than average growth in average
Dublin retail and recreation visits weekly earnings in the past five years
were still 35% below baseline, such with wholesale and retail trade and
visits nationally were only down earnings up 16.3% since Q1 2015 and
by 26%. Much will depend on how accommodation and food services
quickly workers return to commuting. earnings up 19.2%, compared with
14.4% average for all sectors.
Average weekly earnings rose by
3.9% year-on-year to €801.83 in Q1 The relative improvement in those
2020, according to the CSO. Weekly sectors is likely influenced by the
earnings vary significantly by sector increase in the national minimum
with workers in the wholesale and wage in recent years as about 30%
retail trade and accommodation and of workers in each sector earned the
food services earning much less: minimum wage in Q4 2019.
about three quarters of the average
The increase in working
from home means that
consumers are spending
closer to home.
16Finding Cash in the bank
Customers The Central Bank of Ireland (CBI)
has identified a strong negative
In January 2020, Irish consumer relationship between household
sentiment reached a six-month high deposit flows and card transactions
as worries about a hard Brexit eased, (ATM cash and card payment
according to the KBC Consumer combined). It reported that household
Sentiment Index. However, sentiment deposits in banks and credit unions
was still below the five-year average increased by a record €3 billion
as concerns about the general in April and by €1.5 billion in May.
economic outlook and the outlook Underlying this is a longstanding
for unemployment remained. As trend for households to increase their
consumers faced an uncertain future overnight deposits, which saw a net
and they reported only marginal inflow of €16.2 billion in the two years
gains in their household finances, ending May 2020.
many consumers remained reluctant
to spend. Another factor that may have
boosted deposits in recent months
While consumer sentiment soured has been a long-anticipated shift in
further with the onset of Covid-19, consumer preferences from cash in
a pattern had already been firmly hand to cash in the bank. The value
established: consumers were saving of ATM cash withdrawals increased
rather than spending. The CSO year-on-year each month between
reported that the household savings June 2018 and May 2019, to the tune
rate (effectively the proportion of €1.3 billion in additional cash
of gross disposable income that withdrawn. That trend reversed from
households don’t spend) jumped to June 2019.
16.4%, the highest level since 2009, as
employee pay rose and spending fell. Some €2.9 billion less cash was
withdrawn between March and
June 2020 compared with 2019
as businesses promoted contact-
free commerce and contactless
payments. The CBI estimated that
cash withdrawals were down about
35% year-on-year in July.
17The CBI’s monthly card payments data The CSO’s retail sales index shows
and the CSO’s retail sales index both that food businesses, especially
point to sharp divergences in turnover supermarkets, were the only sector to
trends in different sectors. The CBI report growth annual growth in sales
shows that card spend on groceries/ in March-May 2020. Likely spurred by
perishables increased sharply in precautionary spending on healthcare
March as home-bound consumers products, sales of pharmaceutical,
stocked up on essentials especially medical and cosmetic products grew
after all childcare and educational in March before falling back in the
establishments were closed in mid- following months.
March.
Card Usage Sectoral YoY Change
75%
50%
25%
0%
-25%
-50%
-75%
-100%
Groceries/Perishables Electrical, Clothing Entertainment Restaurants/Dining Transport Accomodation
Electronics
& Hardware
Jan-Feb March Apr-May June
Source: CBI analysis of monthly credit and debit card data.
18Spending on electrical, electronic and The reopening of stores meant
hardware goods held up relatively that the percentage of turnover
well as consumers and businesses generated by online sales fell to 6.8 %
adjusted to spending most of their in June, down from the peak of 15.3%
time at home, including working in April but more than double the
remotely. Even with stores closed 2019 average of 3.3%
many businesses pivoted to or
prioritised online sales and orders, In July, the government announced
boosting the sale of digital services a package of measures to stimulate
such as gaming and streaming. consumer spending. These included
a six-month reduction in the
Accommodation and food businesses standard VAT rate from 23% to 21%
took a huge hit with spend and sales and a “Stay and Spend” incentive
down by in restaurants/dining, bars providing income tax credits of up to
and accommodation sharply down. €125 per taxpayer for spending of up
to €625 on domestic accommodation
The easing of restrictions and and/or food services (excluding
reopening of most retail outlets alcohol) between October 2020 and
during June fuelled a 38.3% monthly April 2021.
increase in the volume of retail sales
on a seasonally adjusted basis, while
retail sales were 3.5% higher than in
June 2019.
Seasonally Adjusted Retail Sales Volumes
(Annual Change April - June 2020)
0.4
0.2
0
-0.2
-0.4
-0.6
-0.8
-1
Source: CSO Retail Sales Index.
19The Stay and Spend incentive aims to Card spend fell by almost €2 billion
encourage domestic tourism to offset year-on-year in April-May 2020 but
the decline in international al travel resurged in June, driven by a 25%
and tourism. Overseas arrivals by air increase in domestic spending.
and sea fell by 65.9% year on-year Foreign card spend fell by 45% year-
in the first half of 2020, according on-year in June, the same rate of
to the CSO. This is likely to result in decline as April-May.
much lower earnings from overseas
tourism and travel to Ireland. With international travel restrictions
likely to remain for some time there
However, other CSO data suggests may be huge potential for Irish
overseas expenditure for Irish hospitality operators to tap into.
travellers abroad jumped by €1.2
billion between 2017 and 2019 to Outside the comfort zone
almost €6.5 billion. This meant that
the tourism and travel balance (the CSO survey data suggests that while
different between earnings from the easing of restrictions may enable
foreign tourists and expenditure businesses such as restaurants
abroad by Irish tourists) dropped and bars to serve more customers,
to less than €400 million. mCBI relaxing guidance such as social
data confirms that consumers are or physical distancing (keeping a
increasing their spending at home minimum space between people)
even as they spending abroad falls. may could make potential punters
uncomfortable.
Card Spend by Location (YoY Change)
38%
25%
25%
13% 11% 11%
7%
0%
-13% -9%
-18%
-25%
-38%
-45% -45%
-50%
Jan - Feb 20 Mar 20 April-May 20 June 20
Domestic Foreign
Source: CBI analysis of monthly credit and debit card data.
20The proportion of consumers who the country was trying to return to
would be very uncomfortable with normal began to grow as early as the
going to a pub or bar would increase first week of June, when 27% said the
from 21% to 40% if the social pace with at which the country was
distancing guidance were reduced too quick. That proportion rose to
from two metres to one, while the half by 20 July.
proportion would increase from 13%
to 29% if social distancing guidance Face masks are required on public
were relaxed for restaurants. transport and regulations are
planned for their enforcement in
Weekly Amárach surveys shops and shopping centres, but
commissioned by the Department of consumers will increasingly have to
Health suggest that public opinion consider what they feel comfortable
shifted after Phase 3 restrictions or enjoy doing rather than what
were introduced at the end of June. they’re permitted or advised to do.
In three surveys from 6 July onwards Personal choice and preference will
almost half of respondents said they replace government guidance and
thought there ought to be more regulation. That could serve as an
restrictions, the highest levels since invisible brake on recovery in several
late March. The surveys indicate sectors.
that unease at the pace with which
On balance, do you think that Ireland
is trying to return to normal
100%
90%
80%
70%
60%
50%
40%
30%
20%
10%
0%
25-May 08-Jun 22-Jun 06-Jul 20-Jul
Much too quicky A bit too quickly At about the right pace A bit too slowly Much too slowly
Source: Amárach Public Opinion Tracker for Department of Health.
21Accessing The value of outstanding credit
contracted as businesses continued
Finance to deleverage. At €14 billion in March
2020, outstanding credit to core and
construction SMEs had more halved
In an early indication of the impact
since September 2012. In the hotels
of Covid-19, gross new lending
and restaurants sector, the reduction
to core and construction SMEs
was even sharper: €2.1 billion at
(excluding other property-related
March 2020, down from €5.8 billion
sectors and financial intermediation)
in September 2012. Hotels have
fell to €825 million in Q1 2020, its
dominated borrowing in the sector,
lowest level since Q2 2018. Three
accounting for 64% of new lending in
sectors (primary industries including
the past four years.
agriculture, wholesale/retail trade
and repairs and business and
administrative services) accounted
for 51% of new lending and 52%
of outstanding credit to core and
construction SMEs.
Hotels have dominated
borrowing in the sector,
accounting for 64% of new
lending in the past four years.
22Credit limits Banks in Ireland indicated that they
tightened credit conditions on loans
to enterprises in Q2 2020, while loan
Analysis by the CBI suggests that demand from enterprises fell.
available credit for accommodation However, loan demand from SMEs
and food service businesses is almost unexpectedly increased in Q2. In
fully utilised (97% credit utilisation), Q3, banks expect credit standards
higher than other sectors affected by to tighten for all enterprises while
Covid-19. It also suggests that SMEs loan demand is expected to increase
in the sector are relatively more for all enterprises except large
indebted, with one-in-five reporting enterprises.
a debt-to-turnover (DT) ratio of more
than 0.5, compared with only 6% for
all SMEs.
Credit Use in Selected Sectors
100%
97.1% 5.5% 5.3%
92.5%
90%
17.6%
20.1%
80% 79.0%
76.8%
70%
60% 39.5% 41.0%
50%
36.1%
40%
51.4%
30%
20%
10%
43.8% 31.0% 55.0% 53.7%
0%
Accommodation & Food Agriculture Manufacturing Construction
Zero debt DT>0 and 0.5 Credit utilisation (May 2020)
Source: CBI SME Market Report 2020; Department of Finance Credit Demand Survey.
Note: DT=Debt to turnover ratio April-September 2019.
23Cash flow concerns hire purchase and loans) declined.
Demand for overdrafts declined
from late April as demand for other
With many businesses forced to close loan products recovered. The CBI
their doors, from mid-March, cash also estimated in April 2020 that
flow and access to liquidity became a non-agricultural SMEs would require
major issue. liquidity of between €2.4 billion
and €5.7 billion over a three-month
Some 36% of respondents to a July period.
2020 Institute of Directors survey
said they experienced cash flow In addition to seeking new or
issues in Q2, while 28% said they increased overdrafts, SMEs took a
foresaw having cash flow issues for range of measures to manage their
the rest of 2020. cashflow and reduce their outgoings.
While only about 9% of all SMEs who
CBI data based on consumer credit responded to a CSO survey in June
register enquiries suggest that the 2020 said they took such measures,
demand for business overdrafts more than half of the SMEs in the
spiked in April, while demand for accommodation and food services
other credit products (leasing and sector did.
Measures Taken to Manage Cash Flow (June 2020)
(% of Responding Enterprises)
8.6%
No measures taken
53.3%
11.4%
Increased overdraft facilities
7.0%
65.7%
Deferred/changed payments to suppliers
20.4%
71.4%
Deferred/changed Revenue payments
25.2%
Deferred/changed property payments 74.3%
(including rent, utilities and local authority rates) 22.8%
42.9%
Deferred/changed loan repayments
16.2%
0% 20% 40% 60% 80%
Accommodation and Food Services All Respondents
Source: CSO, Business Impact of Covid-19.
24Between two-thirds and three BPFI data, which cover the five main
quarters of responding SMEs in retail banks, showed that some
the sector deferred or changed 32,100 SME and 4,300 corporate loan
payments to suppliers, the Revenue accounts had been put on payment
Commissioners or property-related breaks.
billers (rent, utilities and local
authority rates). By 24 July, some 23,700 SME
accounts and 3,300 corporate
More than 40% of responding accounts were still on active payment
accommodation and food service breaks while most of the others had
SMEs also said they deferred or returned to full repayment. About
changed loan repayments. a quarter of the value of business
loans and advances were on active
This aligns with CBI data on the payment breaks: 25.9% for SME and
sector indicating that almost two 23.9% for corporate.
thirds and one fifth of the value
of SME and corporate loans,
respectively, were on a payment
break at 19 June.
Business Payment Breaks (24 July)
40
30
25.9%
23.9%
20
10
32.1 23.7 4.3 3.3
0
Business - SMEs Business - Corporate
Approved Break Loans (’000s) Active Break Loans (’000s)
Active Break as % Outstanding Value
Source: BPFI.
25Financial supports The same partners offer the Future
Growth Loan Scheme, which was
expanded from €300 million to
The government launched a range €800 million in July. It provides for
of financial supports for businesses long-term loans of up to €3 million
affected by Covid-19. for investment to SMEs and other
businesses with fewer than 500
Among the current business employees.
supports, the Restart Grant to help
businesses to reopen premises Microfinance Ireland, which operates
is the biggest with almost 34,000 the government’s Microenterprise
grants approved to the value of €139 Loan Find, offers a separate Covid-19
million. loan for micro enterprises (loans of
up to €50,000 for businesses typically
AIB, Bank of Ireland and Ulster Bank employing fewer than 10 people). It
offer Covid-19 Working Capital Loans approved almost 670 loans valued at
and by 24 July some 720 loans with some €18.1 million.
the Strategic Banking Corporation
of Ireland (SBCI) had been approved
valued at almost €89 million.
Among the current business
supports, the Restart Grant
to help businesses to reopen
premises is the biggest with
almost 34,000 grants approved
to the value of €139 million.
26Take-up of Government Business Supports
for Covid-19 (24 July)
Source: Department of Business, Enterprise and Innovation Covid-19 Business Supports Tracker.
The biggest in potential scale is loans and performance bonds with
the yet-to-be launched €2 billion terms of up to seven years and with
Covid-19 credit guarantee scheme facilities between €10,000 and €1
through which the government plans million. The scheme will be operated
to provide an 80% guarantee against by the SBCI. The enabling legislation,
bank losses on qualifying loans to the Credit Guarantee (Amendment)
eligible SMEs. Credit facilities covered Act 2020 was passed by the
will include term loans, demand Oireachtas in July.
27Banking & Payments Federation Ireland, Floor 3, One Molesworth Street, Dublin 2 D02 RF29, Ireland. +353 1 671 53 11 info@bpfi.ie www.bpfi.ie Dublin • Brussels • Frankfurt
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