Written answers

Thursday, 3 July 2014

Department of Finance

Strategic Banking Corporation of Ireland Remit

Photo of Dara CallearyDara Calleary (Mayo, Fianna Fail)
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18. To ask the Minister for Finance the role he envisages for the Strategic Banking Corporation of Ireland; the reason it will not have a banking licence; his views that this will inhibit its ability to provide credit in the marketplace; and if he will make a statement on the matter. [28545/14]

Photo of Michael NoonanMichael Noonan (Limerick City, Fine Gael)
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As the Deputy will be aware, the Taoiseach and Chancellor Merkel last year sought, when we were exiting the EU/IMF Programme, to specifically to find ways to reinforce Ireland's economic recovery by improving funding mechanisms for the real economy, including access to finance for Irish SMEs. The German Government asked KfW, the German development bank, to work with the German and Irish authorities swiftly, in order to deliver on this initiative at the earliest possible date.

Officials at my Department with assistance from staff of the NPRF have worked quickly to investigate ways to ensure that the benefit of this cooperation to Irish SMEs can be maximised.  Earlier this week the Government approved the publication of legislation to allow for the establishment of the Strategic Banking Corporation of Ireland, the SBCI.

KfW and the European Investment Bank have indicated that they are willing to provide low cost funding to SBCI for up to a 10-year term. Locking in funds at a lower cost for a 10-year period is both a major benefit and a risk mitigant for SMEs. To have locked in lower cost funding would be a major benefit in such circumstances and this fact should provide considerable confidence to the SME sector as it increases the certainty of funding to that sector even in adverse financial market conditions.

A key benefit of the SBCI will be its ability to facilitate loans with initial capital repayment breaks or the offering of loans with longer durations than are typically available currently. In such cases, SMEs would have greater capacity to make investments on the basis of improved cash flow matching, which makes growth more likely.  Additionally, the expanded pool of lending products could serve the needs of a wider cohort of SME customers than is presently served by the lending institutions.

The SBCI will be set up withoput a banking licence. This is because the activities which the Government wishes it to carry out, providing lending products to SMEs through the on lending model, do not require a licence. This does not preclude the SBCI from applying for a banking licence in the future.

The Government believes that this will not inhibit the SBCI's ability to provide credit in the marketplace as the role of the on-lending development institution is a well established business model that is beneficial and successful in other markets.  Similar to how KfW operates in Germany, SBCI, acting primarily as a wholesale lender, will lend to on-lenders, who will then on-lend to SMEs allowing small business to access finance facilitated by the SBCI through regulated providers of credit from the earliest possible date.  The on-lenders are likely to be existing or new entrant market participants which meet prescribed criteria which will be set by the SBCI to ensure that the on-lender can lend prudently to the target market.

The Government is prioritising the passage of the required legislation through the Houses of the Oireachtas and I expect the SBCI to be facilitating lending before the end of the year.  

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