Written answers

Wednesday, 20 May 2020

Department of Finance

Financial Services Sector

Photo of Robert TroyRobert Troy (Longford-Westmeath, Fianna Fail)
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65. To ask the Minister for Finance if zero interest loan schemes for SMEs are being considered to bridge liquidity difficulties for businesses following the confirmation that banks can now borrow from the ECB at a negative rate of 0.75%. [5675/20]

Photo of Paschal DonohoePaschal Donohoe (Dublin Central, Fine Gael)
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As part of the Targeted Longer-Term Refinancing Operation (TLTRO), banks can borrow from the Eurosystem at favourable terms to incentivise eligible lending to businesses and households. As of 30 April, the Governing Council of the ECB has set the entry rate on the TLTRO programme to be -0.5%. The interest rate then decreases on a scale depending on developments in a bank’s eligible lending. The minimum rate on the borrowing can be as low as -1% if a bank exceeds its lending benchmark for eligible lending.

Access to TLTRO funding is available to banks across the euro area, including to Irish banks, but is optional and is a decision for a bank itself to make. Up to now, take-up from Irish banks in previous TLTRO programs has been limited. Importantly, the TLTRO program does not specify the interest rate at which the bank lending to business (or households) should take place.  However, banks do not just use TLTRO to fund their activity. In practice they utilise a diverse range of funding sources, including consumer deposits, which are relatively more expensive for the bank compared to the funding available under TLTRO.

Neither the Central Bank of Ireland, the ECB, nor the Government plays a role in determining the interest rate on a loan from a private bank in Ireland. However, one would always expect a spread above borrowing costs to reflect various costs associated with lending, such as credit risk premia, operating costs including credit assessment, and the cost of equity. All of these factors are particularly high in the Irish SME lending market.  Banks are also required to hold an adequate level of capital against SME lending this also contributes to the interest rates charged by banks.

Separately, banks are offering a payment break up to six months for business and personal customers affected by Covid-19. A payment break as a response to COVID-19 is not identified specifically on credit reports. If a lender agrees to a payment break with no payments at all, then no “missed payments” will be submitted to the Central Credit Register by the lender during this period.

The Government has put in place a suite of measures to assist SMEs during these difficult times. These include measures to help viable businesses access the liquidity that they require. There is a range of Government supports available through the Strategic Banking Corporation of Ireland. €200 million is currently available for COVID 19 affected customers through the SBCI COVID19 Working Capital Scheme.  The Minister for Business, Enterprise and Innovation, Heather Humphreys TD, has recently announced the expansion of two SBCI Loan Schemes by €450m to provide an extra €250m for working capital and €200m for longer-term loans, bringing the total allocation to support liquidity in companies affected by the COVID-19 crisis to €650m. The SBCI also has existing supports in place that can help SMEs, including the Credit Guarantee Scheme, which has current lending capacity for SMEs. The Credit Guarantee Scheme supports lending through the provision of an 80% Government Guarantee for qualifying businesses.  The Microfinance Ireland Loan Scheme has also introduced loans of up to €50,000 for micro-SMEs affected by COVID 19.  The expansion of Microfinance Ireland funding by €13m to €20m for COVID-19 loans has also been recently announced with interest rates falling from 7.8% to 4.5%. The Government also recently announced a 2 billion COVID-19 Credit Guarantee Scheme to support lending to SMEs for terms ranging from 3 months to 6 years, which will be below market interest rates.

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