Business Irish

Friday 22 September 2017

EIB chief to visit Dublin for talks on loans despite lack of Irish top rating

Donal O'Donovan and Peter Flanagan in Luxembourg

THE head of the European Investment Bank (EIB) is to visit Ireland for talks on allowing the Government here to borrow from the bank despite not having a top credit rating.

The news comes as the European Central Bank (ECB) also loosened the terms on which it lends to banks.

However, Germany's Bundesbank said it's opposed to the ECB's decision to relax some rules on the collateral that banks can offer in exchange for central bank loans.

The ECB said yesterday it will cut the rating thresholds and amend eligibility requirements for some asset-backed securities in its refinancing operations. While the move will give stressed banks greater access to ECB liquidity, it may also increase the amount of risk on the central bank's balance sheet.

"We're critical of this," Bundesbank spokesman Michael Best said. In terms of collateral, "we won't accept what we don't have to accept," he said.

EIB president Werner Hoyer will meet Finance Minister Michael Noonan and Public Expenditure Minister Brendan Howlin in separate meetings in Dublin on July 5 and 6, Mr Noonan said yesterday in Luxembourg.

The EIB is the European Union's own bank -- established to make long-term loans for large capital projects such as roads and rail construction.

Ireland cannot currently borrow from the bank, however, because the Government lacks an AAA credit rating.

That cuts off a crucial form of financing for projects that might boost the economy, including infrastructure and development of a number of schools.

Last night Mr Noonan told the Irish Independent that he was hopeful of a deal to get access to the cash.

"I spoke with Mr Hoyer today and he would like to sort out the problems Ireland has because at the moment the EIB is overcommitted in a lot of countries but is under committed in Ireland so there is scope for expansion," Mr Noonan added.

Hopes of access to EIB funds come as the ECB relaxed its rules on the collateral that banks can put up in exchange for central bank cheap loans.

Banks use the loans for day-to-day cash, or "liquidity", even when normal markets are frozen.

The new ECB rules increase the types of assets that banks can pledge as security for cheap ECB loans.

In practice it will be easier and cheaper for banks that hold mortgages and other types of risky loan to borrow cash. It's designed to help Spain but banks here are also set to benefit from the looser regime.

The ECB said yesterday that it was to start accepting residential and commercial mortgage-backed securities, securities backed by loans to small and medium-sized firms, car loans and leasing and consumer finance ABS, rated as low as BBB-, in exchange for loans.

The changes are expected to boost lending to banks across the eurozone by over €100bn.

Banks will be penalised for using the new assets as collateral, however.

A 16pc 'haircut' will be applied when a bank uses A-rated assets as collateral -- meaning a bank can only borrow 84pc of the face value of the pledged asset.

The haircut will rise to 32pc for commercial mortgage-backed securities in the triple-B band.

Irish Independent

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