Non-bank lenders to SMEs as a source of financial stability risk – a balance sheet assessment

Kitty Moloney, Paraic O'Gorman, Max O'Sullivan and Paul Reddan
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Paraic O'Gorman: Central Bank of Ireland
Max O'Sullivan: Central Bank of Ireland
Paul Reddan: Central Bank of Ireland

No 11/FS/23, Financial Stability Notes from Central Bank of Ireland

Abstract: In this Note we focus on non-banks lending to small and medium-sized enterprises (SMEs). Understanding how non-bank lenders (NBLs) to SMEs fund themselves and the interconnections they have with other entities helps us to assess the lenders’ resilience and how their activities may impact the real economy. We find they have significant interconnections with European banks and other international financial entities, as well as with European parent non-financial companies (NFCs). We also present an activity-based taxonomy of NBLs to SMEs containing three main categories. Asset Finance Providers mainly receive funding through their (European) parent companies. Specialist Property and General Lenders rely on a mix of market-based sources of funding and the banking sector, and often borrow through variable rate loans. We suggest that Specialist Property Lenders are the most important category from a financial stability perspective as they are lending to a systemically important sector of the Irish economy, are specialist lenders (increasing concentration risk) and appear to be more sensitive to current financial conditions.

Date: 2023-12
New Economics Papers: this item is included in nep-ban, nep-ent, nep-eur, nep-fdg and nep-sbm
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