Mr. Nick Ashmore:

The SBCI can comment most on the agri cash flow support loan scheme. It is the first time that we have brought a SBCI-generated guarantee programme. We also support and deliver the credit guarantee scheme on behalf of the Minister for Business, Enterprise and Innovation but this was the first time that we took the risk on our own balance sheet of delivering a guarantee. It was something of a step into the unknown for us. We saw very strong demand, as we noted earlier, and price was definitely a factor. The knowledge and awareness around the scheme among farmers was very high. From the outset, we did not have to do any marketing. The Irish Farmers Association and other representative bodies took care of that for us. Among all the SMEs we spoke to and that we interact with, farmers are by far the most switched on in finances and interest rate sensitivity.

The scheme was sized for a number of factors. One was the funding available through the European Commission and the State, which was €25 million. That was exceptional aid. A window opened in the state aid rules through which we could then deploy that funding, which was on an exceptional basis. A European-wide market failure was acknowledged, funding was deployed and a state aid window was opened. We were able to intervene and provide a support to the working capital side of farming that we would not normally be able to do. The only way to provide aid through working capital is through a de minimisstate aid window which is very small, it is €15,000 of aid per farmer in any one three-year period. If we take up too much of that capacity, direct aid such as fodder supports or other schemes that the Department operates may be restricted in their ability to be deployed. State aid is a factor in how we can do these things.

Early on, the loan duration in that scheme appeared to be a little shorter on average than we expected. Ultimately, the longer-term loans took longer to come through so that by the end of the scheme when we deployed €145 million, we found that 29% was less than two years in duration while the vast majority of the scheme went out at longer durations, with 23% out at six years. We got a good spread in the duration of the loans.

We are looking to learn lessons from that scheme. We have engaged a market research firm to conduct our survey to examine the impact and see what happened on the ground with farmers, and asking questions such as whether the farmers who wanted aid got it and whether the farmers who got it need it. Getting these answers in a pure piece of research will help to inform us about how the scheme worked and inform new schemes that we hope to bring to market in future. We are doing that with the Department of Agriculture, Food and the Marine. We have included questions in the survey to address what the needs are now and what they will be going into the second half of the year.

The scheme was first come, first served. We felt that was the fairest way of doing this for the first time. There were various criteria around whether farmers had engaged in environmental practices or education processes and those criteria were deployed by the Department and provided some degree of targeting although most farmers qualified in one way or another. Ultimately, we understood from the banks that the decline rate was about 2% across the board.

As we look at new schemes for the future, one question is whether we should support investment loans or working capital loans. Of the aggregate of about €350 million that we deployed to farmers, slightly over half has been in support of investment loans through the original bank funding that we provided and also through the non-bank lenders. In each case, we have sought to ensure that the financial advantage of discount that we provide is passed through to the end borrower. Those discounts have varied over recent years from 1% to 2% and more against what they would normally pay.

We have had very strong interest in our schemes and co-operation from the banks.

It was no easy task to spin up a new product and a new scheme for new lenders to operate and we very much appreciate the hard work of all the institutions in this respect, as well as their co-operation and collaboration in delivering these schemes. As we do more of them, the process will get easier and will get better. It is a serial process and, given the number of banks, we can only bring one scheme to market at one time. We have to manage the demands of the primary agriculture sector and the SME sector. Our recent priority has been to deliver the Brexit support loan scheme. We have learned a lot of lessons from the agri scheme and used it in the Brexit support scheme and we will learn the lessons from the latter in our next scheme.

The type of guarantee is important. We deployed a capped portfolio guarantee in the original scheme and an uncapped guarantee in the Brexit support loan scheme. The former is easier under state aid rules but the latter has a bigger impact because the capital costs of SME and farming lending are high. If we can do an uncapped guarantee we can have a bigger impact on the capital requirement and we can leverage the funding available much more significantly. In the original scheme we had to put a lot of the money into subsidising the interest rate to get it down to where it was. In the Brexit scheme, where we have a price cap of 4%, we are not providing any subsidy and that is purely down to the guarantee we have provided. We are starting to work our way through the different options.

The split within the support loan scheme was pretty much equal as between beef and dairy. We are not in a position to comment too much on price but Central Bank and other research suggests that capital requirements, historic loss rates and new SME regulations increase the cost of administration, and in turn the price of lending. We also believe a small element is down to competition and if there were more competitors in the market the prices would come down a little bit in line with the economics of supply and demand.

The community banking model is very interesting but very challenging. Germany and other countries have an effective community banking model but it is massively underpinned by Government support. The role of KfW in that market is fundamental and enormous but the SBCI is not at that level nor do we want to get to that level and create a Government-reliant market. We would rather intervene where there are specific market failures and look to the banks to use their capital to lend to the market, rather than relying on a pure Government support. That is challenging in the farming sector where margins are tight and the onus is on looking at the cost of funds. It is also more efficient for the State if there is an effective private market in place.

We are seeing some interesting green shoots within the community banking space and a number of credit unions have got together in the west to share their resources to provide loans to farmers. That is a really encouraging first step and if we can see more of that we may be able to deploy risk sharing in the future to support them in competing and in growing their operations. We also understand the Irish Strategic Investment Fund, ISIF, is reporting a new MilkFlex product today, though I do not want to steal its thunder, which speaks to the volatility around milk prices and is a broader measure than we have seen heretofore in terms of the co-ops through which it can be operated.

We operate through our three non-bank finance on-lenders, Finance Ireland, Fexco and First Citizen, which support farmers releasing hire purchase products so that they can invest in new equipment and facilities. Our average interest rate across the spectrum is around 5% at the moment. We are co-ordinating with the Department around new supports that might come forward. The Minister is the policy setter in this regard while we are the policy delivery mechanism. We are not here to comment on policy and will leave that to him but we are here to help deliver what mechanism he chooses to use. We also engage at European level, which is very important because the European Commission is waking up to the importance of financial instruments as it goes into the next multiannual financial framework and we are hearing talk of surveys being done around special financial instruments for farming. We have been successful in deploying small, SME-type, supports such as the COSME programme which we were the first in Europe to use for farmers. Indeed, the head of the COSME programme came over to have a look at our books, having been unable to understand how we had managed to do it. It is about taking European supports, adapting them and making them work with the banking organisations for Irish businesses and farmers.

We are engaged in preliminary discussions with other promotional institutions around Europe and the European Investment Bank, EIB, ahead of the next multiannual financial framework because, as the emphasis pushes more towards financial instruments given budget constraints and their impact on the CAP, we need to be ready to be able to deploy new instruments and supports into the market. I am meeting the European Investment Bank with a bunch of other national promotional institutions, NPIs, next week in Luxembourg to talk specifically about this and I will put agriculture on the table at that meeting as a key area of concern. The EIB has stepped up its interest in supporting farmers too.

Farmers are in a strong position in generally being asset rich and so able to access lending through their collateral, which can also have an impact on pricing. We understand that it is not appropriate in every case, however, and that it is important to have the full range of lending options for farmers, which we will look to support how and wherever we can.