New State bank to pump €500m into credit-starved SME sector

The Government is setting up a new State bank to pump over €500 million into Ireland’s credit-starved SME sector.

The Strategic Banking Corporation of Ireland (SBCI) will be jointly funded by Germany's promotional bank KfW, the European Investment Bank (EIB) and the national pension reserve fund here.

The SBCI will provide funds to banks and other institutions on the proviso they lend to SMEs on more favourable terms than have been available up to now.

The loans will be low-interest and targeted at firms who cannot get credit through the normal channels.

These include established small businesses looking to buy new machinery or start-ups looking for longer term loan repayment plans.

The lack of access to finance by small- and medium-sized enterprises has been identified by economists as one of the key risks to Irish recovery.

Minister for Finance Michael Noonan said the Government would prioritise the passage of legislation required for the bank's establishment through the Oireachtas.

On that basis , he said he expected it to be lending to businesses before the end of the year.

“Credit is the lifeblood of all businesses and SMEs will now be able to access loans of greater duration, with enhanced terms and potentially at a lower cost facilitated by the SBCI and its on-lending partners,” Mr Noonan said.

The involvement of Germany in the initiative follows talks between Taoiseach Enda Kenny and German chancellor Angela Merkel last year, which centred on how best to reinforce Ireland's economic recovery.

Mr Kenny said the establishment of the new State lender would cement Ireland's burgeoning recovery.

“Using funds from the German bank KfW, the EIB and the Irish Strategic Investment Fund [the new name for the National Pension Reserve Fund], the first phase will make over €500 million available for small Irish business,” he said.

Business groups broadly welcomed the new bank but raised concerns about the involvement of retail banks.

Mark Fielding, of the Irish Small and Medium Enterprises Association, said there was a fear that bailed out banks will “revert to form” and divert the low-cost loans to “safer” large businesses.

“Our banks have form in this area and previous European low-interest loans found their way to less risky larger businesses, making a killing for the banks, while starving SMEs of much needed finance,” he said.

Ian Talbot of Chambers Ireland, an umbrella group of Ireland’s chambers of commerce, attacked what he branded a vague timeline for the set up of the bank. “There is an urgent need for this to be put in place and we are calling for a deadline of September 2014 to be set,” he said.

The Government announced the establishment of the bank at the launch of a progress report on the its so-called action plan for jobs, which claimed to show that 97 out of the 103 measures earmarked for delivery had been implemented.

Among those measures were the opening of 31 new local enterprise offices, the launch of an online guide to SME supports, and the rollout of an online voucher scheme to support businesses trading online.

The Government also said it had published the Construction 2020 report, outlining a series of measures to stimulate activity in the sector, and a new ICT Skills action plan, as promised.

“ Jobs are the top priority of the Government. Stability creates jobs, attracts investment and grows economies,” Mr Kenny said , insisting the plan would deliver 100,000 new jobs by 2016

Tánaiste Eamon Gilmore said the establishment of the ISBC along with the publication of the legislation on the Strategic Investment Fund marked the delivery of another important commitment in the programme for Government.

“ It is another example of the kind of reforms that we have to make, to steer the Irish economy towards a sustainable, export-led growth model that generates more and better jobs”.

Additional reporting by PA