Friday 21 July 2017

SBCI to bring in new lenders to boost SME loans

State-backed funder has drawn down an extra €25m from the Exchequer

'Chief executive Nick Ashmore, pictured, told the Sunday Independent that the SBCI hopes to secure one in the next two-to-three months and another shortly thereafter'
'Chief executive Nick Ashmore, pictured, told the Sunday Independent that the SBCI hopes to secure one in the next two-to-three months and another shortly thereafter'
Gavin McLoughlin

Gavin McLoughlin

The Strategic Banking Corporation of Ireland (SBCI) is in advanced discussions about adding two new lenders to its books.

Chief executive Nick Ashmore told the Sunday Independent that the SBCI hopes to secure one in the next two-to-three months and another shortly thereafter.

The State-backed SBCI, which has also received funding from the European Investment Bank and German development bank KfW, was set up to channel cheap funding to SMEs via lending partners. So far it has provided funds to banks including AIB and non-bank lenders like Billy Kane's Finance Ireland. Other lenders on its platform include First Citizen Finance, which has just sold a 66pc stake in itself to US hedge fund Magenetar Capital for €28m.

Ashmore said the lenders it is talking to are in the asset-based finance sector. He also said the SBCI was looking at developing new products, and that it had recently drawn down €25m from the Exchequer in further funding. To the end of quarter one, it has loaned out a total of €658m since it opened for business in 2015, with €114m loaned out in the first quarter of 2017.

Ashmore said he would like to try and maintain that for the remainder of the year but added that "it may not continue at quite that pace" because of the ECB's quantitative easing policy providing banks with a source of cheap funding. One of the new products the SBCI is considering bringing to market would be designed to enable a business to carry out a long-term investment to reposition itself. The SBCI has recently started "risk sharing" with its lenders - meaning it will take some of the hit if a loan goes bad - in order to enable cheaper rates to be passed on to borrowers.

"These are in development at the moment, we don't have the final details on what resources might be available or required from the Exchequer. Obviously, it's a tricky time - there's not much money in the system. But what we do is leverage our own balance sheet and the European support from the European Investment Banking group to the maximum degree to try and achieve these," Ashmore said.

"The classic example is a cheddar manufacturer who needs to start making mozzarella because he can't sell cheddar to the UK in three years' time.

"That's a big investment but it's a doable investment for that company because he has all the raw materials, he has the people, he has the premises, he has the distribution, but he needs to change his production line and might want to invest €1m."

"And we can say 'do that over five-to-10 years rather than over four years, and do it at a lower rate and maybe with less security'. Because when you invest in a manufacturing line, that's not actually very good collateral for a bank because they can't pick it up and take it somewhere else and sell it to somebody else if they need to recover that loan.

"So the risk-sharing is a really important piece as it brings down a significant chunk of the interest rate."

Sunday Indo Business

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