Small businesses to get up to €3bn a year from banks

BUSINESS CREDIT:SINCE THE announcement of the establishment of the National Asset Management Agency (Nama) a year ago, the Government has insisted that one of the central objectives of its bank-rescue plan is to increase the flow of credit to small businesses.

Minister for Finance Brian Lenihan yesterday unveiled a series of measures to this end.

AIB and Bank of Ireland will be required to provide up to €3 billion in credit facilities to SMEs in both 2010 and 2011 as a condition of the bank recapitalisation plan, although the figure would be reviewed as the needs of the economy changed, Mr Lenihan said.

Under the provision, the two main banks will be required to submit written plans to the Department of Finance on how this lending facility will operate within six weeks.

The plans will be reviewed by former National Irish Bank director John Trethowan.

Bank of Ireland and AIB are also to make available €20 million in seed capital for Enterprise Ireland-supported ventures, and each bank is to set up a fund of up to €100 million for environmental, clean energy and innovation projects, in addition to the €100 million provided under recapitalisation last year.

The Minister also outlined less-specific requirements. Banks, he said, would be required to “commit resources” to work with Enterprise Ireland and the Irish Bankers Federation in the following areas: developing sectoral expertise in the “modern growth sectors” of the economy, working on the range of banking services that SMEs trading internationally –needed, and introducing new credit products in areas where cash flow, rather than property or assets, is the basis for business lending.

Minister for Enterprise, Trade and Innovation Batt O’Keeffe said yesterday the series of measures would “reinforce the Government’s commitment to supporting businesses, especially SMEs”.

The measures elicited a mixed reaction from business groups.

The Small Firms Association (SFA) questioned how the specific lending targets would be practically achieved in light of the new 8 per cent capital reserves requirement imposed by the Financial Regulator.

While welcoming Nama as a “stabiliser” to the banking system, SFA director Patricia Callan said it would have “no direct benefit to small business lending”.

Isme called on the Government to monitor the banks rigorously to ensure that the commitment to increased lending to SMEs was met and that viable businesses in need of finance received it.

Isme chief executive Mark Fielding said: “The Government needs to be aware that the banks, unless challenged, will use the Nama process for their own devices, and have no interest in supporting other parts of the economy.”

Irish Hotels Federation chief executive John Power said the decision to compel AIB and Bank of Ireland to provide at least €3 billion each in new or increased credit facilities “will go a long way in alleviating the major difficulties being experienced, particularly by small and medium enterprises”.