Michael Noonan (Limerick City, Fine Gael) | Oireachtas source

I am pleased to present the strategic banking corporation of Ireland Bill to the House. This is a significant Bill, providing for the establishment of the strategic banking corporation of Ireland, or the SBCI. By increasing the availability of longer-term flexible debt finance, which is appropriately priced, the establishment of the SBCI will provide SMEs with access to the type of patient intelligent capital that will increase productive investment, encourage growth and generate additional employment opportunities. In this way, the SBCI will play a key role in reinforcing Ireland's economic recovery.

The Government recognises that SMEs are the backbone of the economy, employing nearly 70% of those at work. A stable and appropriate supply of credit to the SME sector encouraging start-ups and enabling incumbent firms to grow is essential. Regardless of the economic and financial cycle, there always will be structural problems in the market that constrain SMEs in accessing credit. This is a feature of SME funding across the OECD.

The Government's medium-term economic strategy, MTES, sets out the ambition of developing a more diversified, competitive and responsive financial infrastructure that can finance growth in the SME sector as we move into a new phase of economic recovery and growth. The Action Plan for Jobs 2014 builds on the previous plan and contains an integrated suite of measures and initiatives that are designed to enhance access to finance for micro, small and medium sized enterprises. The establishment of the SBCI will be a key element in this evolving financial architecture and will build on and reinforce the concrete measures that the Government has already introduced to support employment and growth in the SME sector.

The establishment of the SBCI follows directly from the announcement by the Taoiseach in November 2013, when we successfully exited the EU-IMF programme, that he had held discussions with Chancellor Merkel to specifically find ways to reinforce Ireland's economic recovery by improving funding mechanisms in the real economy, including access to finance for Irish SMEs. Consequently, officials from my Department of Finance, with the assistance from staff of the National Treasury Management Agency, NTMA, have worked closely with KfW, the German Finance Minister and the European Investment Bank to establish the most appropriate way to maximise and sustain the benefits to Irish SMEs of this enhanced co-operation.

The SBCI will be established as a private company in the first instance. Shares in the company will be owned by the Minister for Finance. It is not intended that the shares will be sold at any time but, to ensure flexibility, the legislation sets out how the sale of the shareholding could be enabled if deemed necessary. Although the initial operations of the company will focus on supporting SMEs, other strategic sectors could also be supported in the future. With this possible expansion in mind, the company is being structured so that it is as flexible as possible. The objective of the SBCI will be to increase the availability of loans of greater duration, with enhanced terms and potentially at a lower cost to the SME sector. To achieve this objective, the SBCI will operate as a wholesale lender and will provide funds to other lending institutions, which will be required to transmit the benefits of the more favourable funding terms to their customers, the SMEs.

The strategic role of on-lending development institutions is a well-established model that is both effective and successful in other markets, such as Germany, Spain and France. It will enable Irish SMEs to access the new finance from the earliest possible date. On-lending institutions could include not only the Irish commercial banks but also foreign banks, specialist funds or other qualifying providers of finance. Participants will be required to meet prescribed criteria that will be set by the SBCI to ensure that the on-lender can lend prudently to the targeted market.

The SBCI will provide funding to on-lending institutions that will enable them to offer SME loans of longer tenure - for example, five to ten years - and with more flexible conditions attached. Examples of the latter are capital payment breaks or interest rate holidays. This type of financing is an integral feature of the countries with robust and dynamic SME sectors. It is essential for both growth and employment that the development of the Irish SME sector be supported in a similar manner. The challenges facing SMEs in accessing credit are the product of a complete interplay of supply and demand factors. The SBCI has been designed in a manner that addresses both of these elements.

The provision of a steady supply of low-cost funding from the SBCI should lower the barriers for entry for new providers of funding. Less concentration and increased competition in the provision of financing will clearly be beneficial not only to SMEs but also to the wider economy.

The SBCI also has the potential to incentivise the demand for credit from SMEs. By ensuring financing of a longer tenure and with more flexible conditions attached and that is potentially at a lower cost, the SBCI will provide an important signalling effect in regard to releasing any pent-up demand for finance from the SME sector. The expanded pool of lending products, from a potentially broader range of credit providers, could also serve the needs of a wider cohort of SME customers than is presently served by current lending institutions.

A more stable supply of lower-cost funding from the SBCI will also assist in building confidence within the SME sector as it increases the certainty of financing to that sector, even in adverse financial market conditions. The SBCI will be financed from the outset by a mix of finding from KfW, the European Investment Bank and the National Pensions Reserve Fund's directed portfolio for a period up to ten years. The NPRF will provide €10 million in equity capital and a loan facility of up to €240 million, which can be converted to equity if necessary. KfW and the European Investment Bank combined will more than match that amount and, therefore, the combination of the three initial sources of funding will provide a pool of over €500 million for the SBCI to use in its start-up phase. Further details will be released as and when the funding contracts with the European Investment Bank and KfW are finalised. This can only occur once the SBCI has been established as a company. In its initial phase, the loans from the SBCI will fund loans to SMEs for investment purposes. The range of financial products available to the SME sector will grow during the first year of the SBCI’s operations.

We will work with the Eurpean Commission's Directorate General for Competition on this matter. At one level, the SBCI will operate in a countercyclical manner in seeking to compensate for any constraints in the provision of financing to enterprises, particularly SMEs. It will also operate with a broader development mandate which will enable it to channel investment towards key strategic sectors of the economy.
In the interests of ensuring adequate time for discussion, I will briefly outline the Bill. It has seven parts. Part 1 sets out the preliminary and general provisions, including the purposes of the Bill. It also provides that costs directly attributable to the SBCI will be liabilities of the company itself. Part 2 provides for the establishment of the strategic banking corporation of Ireland through the formation of a private company under the Companies Act which will be independent in carrying out its functions under this legislation. It further allows the SBCI to form subsidiaries. Part 2 also provides that the memorandum and articles of association of the SBCI will be consistent with the provisions of the legislation. Part 2 also sets out the main functions of the company, limits the board to nine members and mandates the NTMA to provide it with any business support services it requires.
Part 3 sets out the funding arrangements of the SBCI, determines the authorised share capital and provides for the initial issue of shares. The key points are that shares to the value of €10 million for the Minister will be funded from the NPRF, authorised share capital will be €250 million and never exceed €1 billion, and a loan from the NPRF can be converted to equity if necessary. It is not intended that all borrowings of the SBCI will need to be guaranteed by the State. The part further provides that the Minister may dispose of shares in the SBCI as he or she sees fit. It is not intended to use this provision, which is included for flexibility. The SBCI's outstanding borrowings at any particular time will be limited to €4 billion. Part 3 also provides for an amendment to section 54 of the Finance Act 1970 to allow the Minister to engage in normal banking transactions with the new company. This enabling provision is usual when creating a State entity which involves borrowing and funding from the Exchequer. The Minister will be empowered to direct the NPRF commission to provide credit to the SBCI and to provide funding to it in respect of the subscription of the Minister's shares in the company. The maximum amount of funding the SBCI can be given by the State will be €5 billion. Part 3 further allows the board of the SBCI to decide what dividends will be paid to the Minister. It also provides that any dividends received by the Minister shall be paid into the Exchequer.
Part 4 provides for the issuance of guarantees by the Minister. It gives the Minister the authority to guarantee any moneys borrowed by the SBCI up to a maximum of €4 billion. The details of any guarantee will be laid before the Oireachtas as soon as may be after it is given. Guarantees will only be used when specifically required to enable borrowings from external providers of loans by the SBCI.
Part 5 sets out how the company will be accountable to the public through the Comptroller and Auditor General and the Committee of Public Accounts. Part 6 provides that the Minister, the NTMA and the NTMA's employees and staff are not to be considered shadow directors under section 27(1) of the Companies Act 1990 or de factodirectors of the SBCI. It is intended that the board of the NTMA is covered here. The provision ensures that the Minister and the NTMA can carry out their various other functions without their involvement in the SBCI constituting a block on their work. Part 6 also provides that certain provisions of the Companies Acts will not apply to the SBCI. The provisions in Part 6 of the Bill will ensure that the Minister's relationship with the SBCI will not prevent him or her carrying out any of his or her functions. They will further avoid redundant reporting requirements in the administration of the SBCI. Part 7 sets out a number of tax exemptions which will apply to the SBCI and any subsidiary wholly owned by it. It will be valid as long as the Minister for Finance remains the sole shareholder and, therefore, sole beneficiary of such tax exemptions.
A robust, dynamic and innovative indigenous SME sector is key to ensuring sustained economic recovery and employment growth. Micro, small and medium-sized enterprises need access to a steady and secure supply of credit if they are to fulfil their growth potential. The proposed establishment of the SBCI builds on the measures and initiatives which have already been put in place by the Government to enhance SME access to finance and may be considered a milestone in our continued economic recovery. By ensuring the provision of improved credit tailored to the business needs of enterprises, particularly SMEs, the SBCI will make an important contribution to stimulating economic activity, enhancing competitiveness and generating employment across the State. I commend the Bill to the House.