Richard Curran: New SME bank must not be afraid to take some risk
Sometimes the script of the Irish financial crash reads better than fiction.
In the very dark years of 2009 and 2010 thousands of small businesses were crying out for some kind of bank finance.
There was an argument that said the state should set up a new SME bank, similar to ICC Bank, which was set up in the 1930s and sold off in 1999.
But how could the state set up a new bank, when it was pumping billions into every existing Irish bank in return for practically full ownership.
The state was coming down with banks.
Scroll on a few years and the crisis is abating.
Banks appear to be more willing to lend, albeit on a drip feed and in a conservative manner.
Low and behold, we are now getting a new state bank to lend to SMEs.
After paying back in full billions to German banks which held Irish bank bonds in bust banks, a chunk of the cash for the new SME bank is coming from a German bank.
The ironies don’t end there.
More of the money will come from the Irish Strategic Investment Fund, formerly the National Pension Reserve Fund, whose money was plundered to bail out some of the other banks.
Having got the Alice in Wonderland aspect of this out of the way, the question is should it be welcomed?
Firstly, anything that will provide another funding option to SMEs is good news.
Secondly, it doesn’t matter whose money it is.
The main thing is that the new lender will take a responsible, commercial approach, but not be too scared to take some kind of risk.
If it takes no risk, the new bank will end up tripping over other bankers all lining up to lend money to the best, least-risky SMEs. If it is too risk averse, it will be a waste of time.
The German backer, KfW will definitely want to get its money back. So will the European Investment Bank. Although it recently lent €65m in a 20-year loan to Liberia to build a hydro-electric plant just three years after the IMF wrote off billions in Liberian national debt.
The ISIF will not want to be seen to throw money around at high risk Irish SMEs.
The new state bank, to be called the Strategic Banking Corporation of Ireland, is better late than never. It will be in a position to lend €500m to the right SMEs. This may not be the small supermarket owner in midlands Ireland, or the proverbial man with a van. Those guys are being told they will just have to hang in there.