Thursday 29 September 2016

State bank says loans to SMEs doubled

Published 22/07/2016 | 02:30

SBCI chief executive Nick Ashmore and SBCI head of products John Madigan. Photo: Johnny Bambury/Fennell Photography
SBCI chief executive Nick Ashmore and SBCI head of products John Madigan. Photo: Johnny Bambury/Fennell Photography

Britain's vote to leave the European Union has made it harder to attract new business lenders into Ireland, according to the head of the Strategic Banking Corporation of Ireland (SBCI).

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The State-owned lender was set up during the financial crash to provide a flow of financing to small and medium enterprises (SMEs), at a time when the main banks were unwilling or unable to lend.

The SBCI doesn't lend directly, but does provide finance to AIB, Bank of Ireland and Ulster Bank, as well as to four niche non-bank lenders at low costs, that must be loaned on to businesses.

Financial results yesterday show SBCI has provided €347m to date to small and medium enterprises (SMEs).

Lending is up from €172m at the start of the year, but well below SBCI's total current lending capacity of €850m.

SBCI chief executive Nick Ashmore said the agency, established in September 2014, had hoped that as much as €800m of loans would be drawn down by the end of this year. That is now unlikely, he said.

"The first year of operation was very focused on setting the foundations for driving choice and competition with five lenders on board by the end of 2015. In addition, a key focus has been growing awareness amongst SMEs of the availability of this lower cost finance," he said.

However, the appetite among Irish businesses for new debt is now rising, he said. Borrowing from SBCI-linked funds means a saving of 1.5pc on borrowing costs for SMEs compared to the market average, he said.

To date the bulk of lending - 85pc by number of loans and 75pc in value - has been borrowed outside Dublin, he said.

The bulk of funds available (€675m) from the SBCI is accessible through the three main banks. The SBCI lends to the banks at a low rate, and that rate is passed on to customers.

A further €171m has been committed to four more specialist finance houses - including leasing and fleet finance providers and an invoice finance provider.

A fifth non-bank lender has just been approved to participate in the scheme, with more new entrants in the pipeline, Mr Ashmore said.

Encouraging new entrants into the Irish market is one of the SBCI's main objectives. That remains challenging, especially in relation to traditional term lending, Mr Ashmore said. Term lending to SMEs remains dominated by the main banks and is a high risk area to get into for new entrants, he said.

"I don't think we're seeing competition at the level we'd like to see, we'd like to get a new term lender in here," he said.

UK banks which had been looking at expanding operations in Ireland are now "up to their necks in Brexit", and unlikely to launch new initiatives here, he said. Non-banks lenders are more flexible, he said.

In the meantime, SBCI said its mid-year update showed good progress across key metrics:

• Drawn lending has doubled to €347m, with the money gone to 8,619 Irish SMEs

• The number of jobs supported by SBCI lending is 43,349

• Average loan size is now €40,000, from €37,000 last December.

• The largest loan was €5m.

Irish Independent

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