Mr. Nick Ashmore:

I thank the joint committee for inviting me to update it once again on the operations of the Strategic Banking Corporation of Ireland, SBCI, and its very substantial and encouraging progress in making it easier and cheaper for Ireland's smaller businesses to borrow. I am joined by my colleague Ms Suzanne Sweeney who is our head of lending. I will start by addressing the reason we have been invited to appear before the committee.

We want to provide the committee with clarity and an assurance on how the SBCI is conducting its work, in line with the legislation which underpinned its establishment and in a transparent manner in accordance with its mandate. The SBCI's primary goal is to deliver financial instruments to the small and medium enterprise, SME, market in Ireland, either using its own balance sheet or as a service provider, to facilitate the availability of credit to benefit the economy and the economic well-being of the State. This allows the SBCI to address market failures and make it easier and cheaper for SMEs to borrow money to support their businesses and enhance competition in the market for SME financing.

The SBCI deploys its resources in three ways. It offers long-term low cost liquidity facilities to financial institutions that extend finance to SMEs; it provides guarantee and risk-sharing facilities to enhance the ability of SMEs to access finance; and it serves as a service provider for the Minister for Business, Enterprise and Innovation in operating the credit guarantee scheme. We focus heavily on ensuring the maximum benefit reaches Irish SMEs and that taxpayers' money and European funding are used appropriately and in accordance with state aid rules. To ensure this, the SBCI requires its on-lenders to account for all of the finance provided by reporting every single loan or facility provided for SMEs and farmers. Unused funds are required to be returned if not utilised in this way within a reasonable period. The SBCI also applies a common impartial approach and rigorous scrutiny to every applicant institution for its facilities. It undertakes a thorough due diligence process in each case to mitigate risks to Irish taxpayers, European funders and SME borrowers. It aims to ensure all lending partners have the necessary financial strength and capability to provide the required level of service to SMEs alongside sufficient protections for the taxpayer.

In offering its liquidity facilities to SME finance providers the SBCI charges a common interest rate, while seeking to take a common level of risk. In order to ensure this commonality of risk, the structure used will naturally vary from institution to institution. State aid rules require us to maintain robust controls to ensure banks and other on-lenders pass on the full benefits of SBCI support to SMEs. To manage the risk, the SBCI's requirements may or may not include an equity contribution from an institution or a similar form of risk mitigation, appropriate legal and corporate structures and due diligence by an auditing firm on an SBCI-approved panel.

The SBCI is a custodian of Irish State and European funds and must ensure these funds are deployed on commercially acceptable terms and have sufficient protection from the risk of deterioration in each lending partner's financial condition. These requirements are applied to all prospective lenders. Adopting these robust and transparent processes in the past three years has enabled the SBCI to support over 22,000 Irish SMEs that have borrowed a total of €920 million using SBCI finance. They included large and small SMEs. Our average loan size is €40,000, but we have supported loans of as little as €1,500 and as much as €4.3 million. The SMEs we have supported employ over 119,000 people. We have been very successful in ensuring the benefits the SBCI offers have been well spread throughout Ireland, with 85% of loans outside Dublin and a generally broad spread throughout all regions of the State. The agrifood sector has been one of the biggest beneficiaries of SBCI funding. It is often overlooked that farmers are SMEs.

The finance provided has been delivered in the form of a strong mix of term loans for working capital and investment purposes, leasing, hire purchase, contract hire and invoice discounting. The SBCI has also supported loans where an SME's existing finance provider will no longer support it and it needs to refinance. I am pleased to say 2017 was a transformative year for the SBCI. We built on the very strong progress made in 2015 and 2016 when we were primarily a conduit for channelling low cost funding from the European Investment Bank, the German promotional bank KfW and the Ireland Strategic Investment Fund, ISIF, through eight institutions, three banks and five non-bank lenders. What made 2017 transformative was our evolution and development into a provider of risk-sharing products on foot of a new arrangement with the European Investment Fund, EIF, and its European Commission backed competitiveness of enterprises and small and medium-sized enterprises, COSME, support scheme for SMEs. This meant that, for the first time, we were empowered to take on risk-sharing with our lending partners, hugely extending our potential impact among the SME community and increasing our scope to improve access to credit. Risk-sharing was the key driver of the agri-cashflow support loan scheme in co-operation with the Minister for Agriculture, Food and the Marine, which was hugely successful in delivering €145 million in low cost working capital loans, with an interest rate of 2.95%, to primary agriculture businesses. The scheme was so attractive to borrowers that it was heavily oversubscribed and all of the capacity was fully accounted for within weeks of launch, far ahead of our expectations.

We comprehensively demonstrated our ability to deliver the scheme quickly and expect to be equally effective in the delivery of similar schemes in the future. This experience demonstrates that our risk-sharing model works and that the agri-cashflow support scheme offers a real template for additional programmes of this nature. The latest of these is the Brexit loan scheme which was announced in the budget. We expect it to be a highly effective support for SMEs in providing up to €300 million in low cost funding, with the support of the European Investment Fund, for businesses which are innovating in response to their exposure to the challenges Brexit poses. The scheme will cover loans ranging from €25,000 to €1.5 million, with loans of up to €500,000 being unsecured. The maximum rate for the scheme will be 4%, which is a material reduction on the matrix rates being charged to SMEs on loans less than €250,000. The SBCI will engage directly with Brexit-impacted SMEs to assist them with the eligibility process and in applying for these loans. This direct engagement will be significantly beneficial as it will allow the SBCI to gather crucial process information on the challenges SMEs face in accessing finance. In turn, we can use it to identify SMEs' needs well into the future and design the right kind of products to meet these needs.

Last year was also transformative because it saw the SBCI bring together the State's risk-sharing activities under one roof when it took over the operation of the Government's credit guarantee scheme. Now that the revamp of the scheme is complete, we expect to drive greater awareness and accessibility of the scheme in conjunction with our range of other supports for SMEs. Many SMEs do not realise they can use as many of our supports as they wish, subject to eligibility. We are working hard to make sure SMEs are fully aware of all the supports we offer.

We are continuing to engage with potential partners and seeking to add new partnership deals during 2018, further extending our range of on-lending partners and making it easier than ever before for SMEs to access SBCI funding. Our partnerships with on-lenders to date have been beneficial in providing low cost finance and, importantly, generating increased competition in the SME lending market by facilitating the entry of new non-bank lenders to the market, both domestic and international. These non-bank lenders such as Bibby Financial Services, FEXCO, Finance Ireland and First Citizen Finance have succeeded in bringing greater choice and innovation to the market, which ultimately is good news for all SMEs.

We plan on continuing the strong progress we have made. We are confident that we can bring more and better forms of low cost funding to the market, in line with our mandate to make the funding environment better for Ireland's SMEs. By adapting to the changing market conditions and developing innovative new supports to drive competition and address market gaps, the SBCI will continue to make a positive impact on SMEs' ability to finance their operations.

For the committee's reference, we have included some slides on the activities of the SBCI.