The head of supervision for credit institutions at the Central Bank is highlighting the scale of the SME lending crisis.

Fiona Muldoon said yesterday that half of the €50 billion in bank loans to small and medium firms are non-performing. She said many business owners are struggling with multiple buy-to-let properties and one of the Central Bank priorities for 2013 is resolving over indebtedness of SMEs.

The Bank says that only 5 of 73 institutions are lending into the SME sector in Ireland today.

"The importance of the SME group cannot be underestimated to the Irish economy and to the wider Irish recovery narrative" she said.

"This group represents more than 99% of enterprises by number in the private sector and employs more than 70% of all people who are employed in the private sector. It is dominated by four sectors, hotel & restaurants, wholesale & retail, agriculture and manufacturing. Like all other parts of the Irish economy, the sector has undergone significant challenges. It is also heavily indebted. SME arrears throw up complex issues and there is a high-level of property related borrowing. In effect, in Ireland, literally and figuratively, all roads lead to property".

 Appropriate restructuring needed

She added that the Central Bank has worked to ensure that each bank has "a practical thought through plan and that they have the operational capability to implement it".

"Banks are required to adopt appropriate restructuring or re-underwriting where possible on an individual case basis and identify appropriate debt resolution strategies that provide sufficient incentives to viable borrowers to work through the debt overhang" she concluded.

Our Business Editor Ian Guider says the core of SME debt comes right back to the collapse of the property market. He spoke to Breakfast this morning.