New research from the Central Bank shows external funding for Irish small and medium businesses (SMEs) is more reliant on commercial banks than almost all European countries.
However the share of firms using bank borrowing to finance either capital or working investment fell by around 50% between 2005 and 2012. It says this has been replaced by trade credit, equity and internal funding.
The Central Bank says policy must aim to stimulate the flow of credit and create well-developed markets for a range of alternative financing sources to complement the role of banks in financing SMEs in Ireland.
This graph shows the percentage of firms using bank borrowing to fund working capital in 2005
The research notes that while a move away from reliance on bank funding is desirable, it is important that policy-makers mitigate the risk that firms are turning to other costly forms of financing due to an inability to access bank credit.
The Bank also says that the Irish private sector is "disproportionately exposed to potential weaknesses in the banking sector, relative to other European countries".
