EUROPEAN INVESTMENT Bank (EIB) president Philippe Maystadt has warned that EU states offering blanket guarantees to their banks may find it more difficult to raise money on international markets.
He has also described Ireland as a “priority country” for the EIB, which has recently agreed to provide €350 million of loans to Irish banks this year to lend to small- and medium-sized enterprises that are struggling to raise money due to the current credit crunch.
“We are ready to finance viable projects of course. But we are really ready to give priority to those countries which are hit hardest by the financial crisis – and Ireland is one of them,” said Mr Maystadt yesterday at the presentation of the EIB’s 2008 annual report.
The EIB was set up by the EU in 1958 to act as a long-term lending bank for the union. It lends money to the public and private sector at attractive rates because it benefits from a AAA credit rating because its main shareholders are the member states. It has become a key tool during the current crisis to overcome the credit crunch.
Mr Maystadt revealed yesterday that even the EIB had observed a tightening of the credit markets towards the end of 2008 as it completed its own fund raising worth €59 billion. He said the bank had already raised €24 billion this year through bond issues and planned to increase this to about €70 billion during 2009.
Asked whether Ireland would struggle to raise cash this year by issuing new bonds, he said some EU states would have to pay a higher price but they should raise the money they need. But he warned that some EU states were making things “more difficult for themselves” by providing blanket guarantees for their banks.
“Sometimes the states, by giving state guarantees, are creating competition for themselves,” said Mr Maystadt, who noted that states were competing with their own commercial banks on the international money markets, who now benefited from the same guarantee. This was raising the cost of borrowing. He said all bank guarantee schemes should include specific measures to ensure that financial institutions in receipt of a guarantee continued to lend to small businesses.
Bank of Ireland, AIB and Ulster Bank are expected to sign formal agreements within a matter of weeks to secure €300 million in EIB funding for loans to small businesses. Bank of Scotland Ireland has already benefited from about €50 million in similar EIB funding, according to EIB officials.
Mr Maystadt confirmed the EIB would approve €7 billion in loans for the troubled car sector in the first half of 2009. But he said loans would be limited to €400 million for each company and would be directed mainly at financing research to design and build green cars that cut the amount of greenhouse gas emissions.
