Banks seek to secure EIB funds for Irish businesses

FOUR IRISH banks are in discussion with the European Investment Bank (EIB) with the aim of availing of some of the bank's €15 billion pan-European fund to lend to small and medium enterprises (SMEs) in Ireland.

Plutarchos Sakellaris, EIB vice-president, who oversees lending activities in Ireland, said yesterday that the banks were "very interested" in accessing the capital and that the EIB was in a due diligence process with four Irish-based banks.

He expects the banks to start lending EIB funds in the first quarter of 2009. Eugene Sheehy, chief executive of AIB, recently confirmed his bank was entering discussions to access the funds.

Stressing that the funds are for the "real economy", Mr Sakellaris said the EIB would ensure that there was transparency in the lending process and that the banks would pass on the better borrowing rates to SMEs.

"The banks must pass on our financial advantage to customers," he said. "We'll set a minimum but will expect more - and we'll check up on the banks."

Although the credit crunch has also hit the EIB's funding costs, Mr Sakellaris maintains that, in relative terms, the bank, which is AAA-rated, can still issue funds at quite an attractive cost.

Earlier this week, the EIB raised almost €2 billion in two separate capital market deals. There is no quota per country for the funds, but Mr Sakellaris said the new package would lead to a "significant increase" in the amount of funds available for loan in Ireland.

From 2003 to 2007, the EIB lent €2.6 billion to support key investment in Ireland - €675 million of which consisted of SME credit lines.

In the past, a number of Irish-based banks have signed agreements with the EIB to provide credit lines to SMEs, including AIB, Depfa Bank and Bank of Scotland (Ireland).

The new funding package comes with certain restrictions. For example, businesses involved in activities such as tobacco or gambling are ineligible, and the maximum amount provided by the EIB cannot exceed €12.5 million.

In addition to its special programme for SMEs, the EIB will continue with its normal lending practices. The bank has just signed a €75 million deal with Trinity College Dublin to help it finance the construction of a new biomedical sciences research and training facility.

It also agreed to lend €175 million to the ESB towards the construction of a 400MW natural gas power plant alongside an existing plant at Aghada in east Cork.

The bank will present its lending plans at the Ecofin meeting next week.

Mr Sakellaris said the bank will look to increase its lending from 2009-2010 by about €15. 6 billion, which, when leveraged, would have an additional global investment value of about €81 billion.