AIB and BoI lend 7.5% of €200m fund to small firms

DESPITE HAVING received a lending facility of €200 million from the European Investment Bank (EIB) last March, Ireland’s two largest banks have thus far only lent out a small portion of this money – just 7.5 per cent – to small and medium-sized enterprises (SMEs).

Last March, the EIB committed to lending €350 million in funds to four Irish-based banks – AIB, Bank of Ireland, Ulster Bank and Bank of Scotland – to lend on to cash-strapped Irish SMEs.

At the time, the EIB said that “Irish enterprises should start to benefit from the EIB loans for SMEs within the coming weeks”.

Seven months on, however, much of the funds have yet to be distributed.

Bank of Ireland received a €100 million facility, but by the end of October, just €4.3 million of this fund had been drawn down.

AIB also received €100 million, and of this about 10 per cent, or €10.7 million, has been drawn down for over 220 customers.

Ulster Bank is unwilling to disclose how much of its €100 million allocation from the EIB it has lent out, while Bank of Scotland, which received a €50 million package, is also unwilling to give a figure. But a spokesman for the bank says that it has lent out the “vast majority” of the fund.

While such low lending levels from both Bank of Ireland and AIB may lend credence to the proposition that the banks are hoarding capital and refusing to lend, the banks say that demand for the funds has been quite low.

“Despite widely promoting the fund, Ulster Bank has seen a low level of applications to date which reflects the current market appetite for expansion funding,” explains a spokeswoman for Ulster Bank.

A spokesman for AIB says that the bank has seen an upturn in demand for the funds, “from an initially low level of interest”.

He adds that in addition to the €10.7 million in drawdowns, the bank is also in active discussions with additional customers to allocate a further €21.5 million in borrowings.

Moreover, Bank of Ireland says it has actually approved €32 million in loans, and issued offer letters, but “customers haven’t drawn down yet”.

The banks say that the low levels of demand may in part be due to the restrictions inherent in lending out the allocations as the money is to be used for investment, rather than working capital facilities, and is targeting SMEs looking to borrow money to develop their businesses.

For example, it can be used to finance expenditure such as the purchase of plant and equipment, or research and development or buying patents, but cannot be used to buy land.

There is also a restriction on economic sectors. For example, companies engaged in defence or gambling are ineligible for the loans, while “ethically or morally controversial sectors”, such as human cloning, pure property speculation and consumer credit, are also excluded.