Opinion Comment

Tuesday 12 December 2017

Debt issue must be tackled for new lending bank to succeed

The SBCI is a positive 
move for SMEs but the negative-equity generation must be freed up to borrow

The Government will look to borrow €500 million on the markets on Thursday
The Government will look to borrow €500 million on the markets on Thursday

Wedged between Garth Brooks on Wednesday and Cabinet musical chairs on Friday, something very useful happened in the Dail on Thursday. Legislation was passed to create a new publicly owned bank. The bank could lend up to €5bn to small-and medium-sized companies (SMEs) in Ireland. If this can be matched with policies to tackle over-indebtedness, we might start to see new investment . . . leading to that all-important economic growth and job creation.

The new bank will be called the Strategic Banking Corporation of Ireland (SBCI). It's based on existing models in countries such as France, Germany and Canada, and will work as follows: The Government will put in €250m, with more than that again coming from the European Investment Bank (EIB) and a publicly owned German development bank called Kreditanstalt fur Wiederaufbau (KfW).

So, to begin with, there'll be somewhere between €500m and €1bn available for SME lending. The SBCI won't lend the money directly to SMEs. It will lend it in tranches to 'on-lenders', such as existing banks and. possibly, credit unions. Critically, these on-lenders will bear the risk of the loans to the SMEs, minimising the risk to the public money.

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