Covid supports have not created ‘zombie’ firms – report –

Two new reports from the Central Bank find that 65% of loans which received some form of forbearance this year were in just two sectors - Real Estate, Accommodation and Food; and Entertainment and Recreation.

They also find the "vast majority" of firms which experienced financial distress during Covid have a viable future and that supports have not created a large group of so-called "zombie" firms.

Using survey data, one of the Central Bank's reports forecasts the rate of financial distress in firms is expected to fall from a peak of 12% in 2020 to 7% in 2024.

It also expects the need for supports to decline due to "a substantial turnover recovery currently underway in Ireland."

However, it highlights a concern over whether or not the same level of sales will return to some businesses.

Without Government support, the report finds that upwards of 30% of small and medium sized enterprises may have had to rely solely on savings to pay their debts.

The report finds that 70% of the firms which may still be in distress by 2024 would have also been in distress or unprofitable pre-pandemic.

This, the report says, highlights the necessity of an insolvency regime that can distinguish between companies that require temporary cash support and those for whom liquidation would be more appropriate.

Another report from the Central Bank finds that from December 2020 and the end of September, 4.7 billion worth of loans were subject to some form of forbearance.

79% of these loans were to businesses. 65% of the loans were attributable to the Real Estate, Accommodation & Food and the Entertainment & Recreation sectors.

This represented 12% of loans to the corporate sector and 10% of loans to the SME sector.

The most commonly used types of forbearance were interest-only repayments and payment breaks.

The report finds that companies have continued to require support from their lenders this year.

While 90% of bank customers on payment breaks in 2020 returned to full repayments, the report finds that the percentage of businesses which had a payment break in 2020 and then another one this year has doubled from 18% in December 2020 to 37% in September 2021.

The forbearance rate for households was described as "stable" this year, but these reports are more focussed on businesses and do not contain all of the information necessary for a fuller picture of the household sector.

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Covid supports have not created 'zombie' firms - report -

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