Mr. Nick Ashmore:

I thank the Chairman and members of the committee for inviting us today. We welcome the opportunity to talk to the committee about the agriculture cashflow support loan scheme and to take any questions members have on this or, indeed, any aspect of the SBCI’s work in the food and agriculture sector. Joining me today is my colleague, Ms Suzanne Sweeney, head of lending at the SBCI.

To introduce ourselves, the SBCI is Ireland’s new promotional finance institution. Between March 2015 and December 2016, working with eight front-line lending institutions, we have supported over 12,500 SMEs with over €540 million in low-cost loans and other forms of finance, using our supply of long-term, low-cost liquidity. This includes significant involvement in the agriculture and food sector. Farming has been the largest sector using this form of SBCI finance, representing 23% of total take-up to date, with more than 5,000 farm businesses having drawn down €141 million in lower-cost SBCI loans up to the end of December 2016. This is in addition to the €150 million that has been made available through the agriculture cashflow support loan scheme.

We first became involved in the agriculture cashflow support loan initiative in July last year, when we engaged with the Department of Agriculture, Food and the Marine on the Minister’s priority to address the impacts of changes in the sterling exchange rate and lower commodity prices on the farming sector, impacts that included very significant cash flow challenges for many farmers. This engagement accelerated with the news of the exceptional aid made available by the European Commission. This was confirmed in September 2016 in Commission Delegated Regulation 2016/1613, providing for exceptional adjustment aid to milk producers and farmers in other livestock sectors. The Department carried out a sector analysis which provided a vital insight into those cash flow challenges. The main findings were that farmers would face a shortage of cash towards the end of the year and into 2017 as a consequence of lower selling prices and-or crop yields, and that they were heavily exposed to costly trade credit and overdrafts to bridge cash flow requirements.

We also engaged with the banks, which confirmed their interest in working with farmers in terms of converting costly trade credit and other capital expenditure borrowings into more sustainable term loans. However, the challenge in tapping into that appetite was to create a more flexible and competitively priced product than what was available in the market at the time and, critically, to address the "red tape" that farmers regularly face when applying for loans. Given the outlook on prices, it was also important that the new product would be available during early 2017.

We had three overriding objectives when we sat down with the Department to the devise the scheme: to develop a product that responded to the liquidity problem that farmers were facing; to do so in a manner that achieved sufficient impact for farmers; and to do so in a way that achieved the greatest possible economic value-add within the parameters we were working in. Alongside the Department, we developed what became the agriculture cashflow support loan scheme by leveraging the €25 million available to us from the Department, which included €11 million from of exceptional aid from the European Commission, alongside the SBCI balance sheet to create a €150 million lending scheme.

While the banks provided the additional cash from their own balance sheets, without which we would not have been able to maximise the impact of the scheme, the SBCI, along with the European Investment Fund’s COSME programme, jointly provided the guarantee required to underpin the flexibility of the loans and their lower cost. Using the funding provided by the Department and its own balance sheet, the SBCI is providing an interest subsidy and a partial guarantee on the loans. The interest rate is 2.95%, which is fixed for the life of the loan. This compares with rates of between 6% and 14% for alternative products such as overdrafts, standard variable loans and merchant credit. Loans up to a maximum of €150,000 per farm are available with terms of one to six years and optional interest-only repayment periods. The loans are unsecured, which has the added advantage of allowing farmers greater flexibility to engage with banks other than their main lender. The loans can be used for future working capital requirements, for example, for feed, fertiliser, trading stock or tax. They can be used as an alternative to more expensive trade credit, to replenish working capital already used on the farm to support capital expenditure and to refinance existing farm creditors. The loans are available to all livestock farmers, tillage farmers, horticulture producers and others involved in primary agricultural production.

The involvement of three major banks with nationwide reach has been a critical factor in the success of the scheme. At a most obvious level, the banks have made significant funding available from their own balance sheets. There is also the fact that most farmers have an existing relationship with one or other of the participating banks, which has greatly facilitated the loan application process. Because of their nationwide spread the banks have played an important role in promoting awareness of the loans through their respective branch networks.

The significance of the scheme is worth reflecting on for a moment, particularly as a precedent for future use of risk sharing and other financial instruments as a means to deliver new policy measures in this space. This is a ground-breaking policy measure in the Irish market and the first use of the COSME programme, which is also part of the Juncker plan or the European Fund for Strategic Investments. Crucially for the SBCI, it represents the first time that the corporation itself has taken on risk sharing with front-line lenders - in this case, AIB, Bank of Ireland and Ulster Bank. This complements the SBCI’s role as operator and manager of the credit guarantee scheme on behalf of the Minister for Jobs, Enterprise and Innovation.

The SBCI will continue to source other European supports and funding to facilitate the delivery of new policy measures in the future as market failures are identified. By building a central conduit for the market for risk sharing and other financial instruments, we can also ensure the efficient flow of European SME supports to the Irish market.

I will now turn to deployment under the scheme. Based on loans that have been drawn down by farmers, to date €60.2 million has been advanced. The average loan size is €32,000. The banks advise that all of the remaining €150 million is committed and is in the process of being drawn down. Based on progress to date, we anticipate that circa 4,000 farmers will benefit from the scheme. In the supporting documentation that we submitted in advance of today’s hearing we have provided a breakdown of the loans drawdown to date by loan term, sector and region. This picture will continue to evolve as the data are reported to us by the banks. As members will see, however, the loans are broadly spread in geographical location and by farm sector.

I refer the committee to slides ten, 11 and 12 at the end of the presentation provided and will briefly talk through the main information on these slides. Slide ten shows the summary of loan deployment to 28 April 2017 broken down by the term of the loans. Loans of more than four years' duration are currently 54% of loans at €32.4 million, which is 41,551 loans. It is worth noting that the average size of a loan is larger at the longer end and smaller at the shorter end. Looking at slide 11 where the sectors are split, we can see that the dairy and beef sectors are by far the largest users of this form of funding. The dairy sector draws down an average loan of almost €37,000. The average beef sector loan is slightly smaller at about €27,500. It is significant that in the other sectors tillage is substantial at 8%, with 90 loans going out there. Slide 12 illustrates the regional split and shows the regional spread to be healthy with loans not concentrated too much in one area. The region with the largest proportion of loans is the south west with 22% and this also reflects our experience on the agricultural investment loans scheme where the south west has the largest share of the borrowing. This would be for investment purposes as well as for working capital.

That concludes my opening remarks and I am very happy to take any questions from members.