The excess level of debt in Ireland gets a frequent airing. Frequent reference is made to graphs like the following published by McKinsey.
Ireland has an excessive level of debt but it is the figures attributed to the financial and non-financial corporate sectors that push us into the stratosphere.
Outside of some coverage issues in relation to the general government debt, there is relatively broad agreement about the excessive debt levels in the household and government sectors.
On the issue of Non-Financial Corporate Debt there was a useful session of the Joint Oireachtas Committee on Finance on the 7th of March. The committee heard from Michael Connolly from the CSO and Joe McNeill led a group from the Central Bank.
The transcript of the debate is here, and the intended text of the opening presentations as well as the slides used by Joe McNeill are here. Michael Connolly also used slides but I have not seen them. I will add a link if someone has it.
The debate meanders at times and a couple of misperceptions are persisted with by some of the Members but there are many useful contributions from the witnesses. A couple of quotes are provided below the fold but there was much more discussed.
The conclusion is straightforward. The non-financial corporate debt burden is not as large as dramatic graphs similar to that above like to indicate.
UPDATE: Michael Connolly has kindly provided the slides he submitted to the Committee. Slides 7 to 13 are particularly relevant and are very useful contributions on this issue.
Michael Connolly: “We referred to the numbers increasing dramatically after 2008. What we see is that the treasury companies in the IFSC are lending substantial amounts of money to their affiliates in the non-financial corporate area. They are managing the international cash management for the multinationals. The lending by the treasury companies to multinationals in this country is increasing each year, certainly after 2008. We also find that they are lending to each other. I refer to affiliate lending between affiliates in the same corporate group. We then also see that borrowing from abroad, which is listed on the top bars in the chart, is increasing too.”
“When we look at bank borrowing, we see that borrowing from banks has been decreasing since 2008. That is all I have to say. I am just trying to provide context and to shed light on the big macro numbers that come out for this sector.”
“What I am telling the committee is that when one looks at the detail of the overall scale of debt for this sector, it is nowhere near as serious for the real economy of this country as one might imply at first sight. When one looks at the detail, it is really about a globalised, internationalised economy which has very large debt but also has very large assets. The two are off-setting one another when we take a net view on it. Of increasing importance is the interlinkage between some of the multinational corporations we have in the sector and their treasury affiliates in the financial sector. It is difficult to look at numbers in isolation because everything is intertwined.”
Joe McNeill: “The first slide we presented shows that credit [to non-financial corporations] by the banks resident in this country fell from €171.3 billion in August 2008 to €87.7 billion at the end of January 2012. That is a huge fall but it is significantly impacted by transfers to NAMA and other non-transaction effects such as write-down of loans. The underlying fall, based on transactions only, is 6.2% per annum from the peak. Annual rates of growth on transactions peaked at 37.1% in July 2006. That is year-on-year growth and it has been falling since.”