Mr. Seamus McCarthy:

The Strategic Banking Corporation of Ireland, SBCI, was established in September 2014 to address difficulties that small and medium sized enterprises, SMEs, were perceived to be experiencing in accessing funding from Irish credit institutions, due to lingering effects of the 2008 banking crisis. Since 2017, SBCI has been tasked to provide assistance to SMEs where access to credit is constrained by specific sectoral or economic market failures, including risks arising due to Brexit. To the best of my recollection, this is the first occasion on which representatives of SBCI have appeared before the committee.

SBCI’s operations are financed through a combination of State and European funding. Its borrowings are guaranteed by the Minster for Finance, as provided for under the governing legislation. The initial business model adopted by SBCI was based on providing wholesale finance to intermediate financial institutions that act as on-lenders to deliver low-cost funding to SMEs and to introduce competition to the market. The on-lenders include both mainstream banks and non-bank specialist lenders.

SBCI now delivers services in three ways. It continues to offer long-term, low-cost liquidity facilities to intermediate financial institutions that in turn extend finance to SMEs, provides guarantee and risk-sharing facilities to improve the ability of SMEs to access finance and acts as a service provider to the Minister for Enterprise, Trade and Employment in respect of the credit guarantee schemes.

The risk-sharing model is designed to provide partial credit guarantees to lenders in order to facilitate the advancement of credit to SMEs. SBCI added to its risk-sharing portfolio in June 2019 when it launched the future growth loan scheme. This scheme is designed to assist SMEs in making long-term investments in their businesses by providing loans over terms of eight to ten years. This followed the introduction of other risk-sharing schemes such as the Brexit loan scheme in 2018 and the agriculture cash flow support loan scheme in 2017. Operationally, all potential on-lenders are required to demonstrate to SBCI that they have the necessary financial strength and capability to provide the required level of service to SMEs. SBCI carries out reviews on a cyclical basis to gain assurance that on-lenders continue to operate within the accepted risk parameters.

During the 2019 financial year, SBCI used credit facilities from two international and two national funders to provide funding products to SMEs through six on-lending partners, namely, three bank and three non-bank on-lenders. At the end of the year, SBCI had lending of more than €555 million in issue to its six on-lenders. This represented a net reduction of 11.5% in the level of lending over the year when compared with end 2018 lending of €627 million. SBCI’s operating expenses in the year amounted to €9.4 million. This included €2.7 million in respect of salaries paid to SBCI staff. Members may wish to note that the staff are employees of the National Treasury Management Agency seconded to the SBCI. The agency also provides administration supports to SBCI, including premises, HR functions, procurement and financial management services. Costs incurred by the National Treasury Management Agency are recovered from SBCI. Salary costs incurred by SBCI in 2019 include performance-related payments of €103,000 that were awarded to seven SBCI staff members in respect of 2019. The then CEO of SBCI received performance-related pay of €25,000 for that year.

Income earned by SBCI in 2019 amounted to €9.3 million. This included net interest of just under €5 million and operating expenses recovered from Departments that fund SBCI's various schemes.  For 2019, SBCI incurred a loss of nearly €500,000. I issued an unqualified audit opinion on the 2019 financial statements. 

Finally, during 2019, SBCI commissioned an external consultancy firm to perform a strategic review of its operations in the context of the State's range of supports for SMEs. The review noted that the original purpose of SBCI had abated because the SME market no longer faced the same challenges of credit availability as was the case when SBCI was established. Nevertheless, the review found that there remained challenges to be addressed, including ensuring access for SMEs to appropriate credit products promoting competitive credit terms and supporting specific SME sectors.  The report went on to make a number of recommendations to be considered as part of SBCI's future strategy, including undertaking more detailed appraisal of the specific market challenges within the SME credit sector in order to assess SBCI's methods of intervention. The subsequent market disruption brought about as a result of the Covid-19 pandemic will need to be considered as part of such appraisals.  

The chief executive officer of SBCI will be able to provide an update on the progress achieved in regard to the recommendations made in the external review.