Banks no longer using SBCI's SME loan scheme

The country's main banks have stopped using a State fund set up to channel low cost finance to SMEs, because lenders can access cheap money in their own right, the Irish Independent has learned.

The Strategic Banking Corporation of Ireland (SBCI) was set up to ensure favourable loan rates reached SMEs, by funnelling State-sourced money through the banks, who could then pass on the benefits. Irish SMEs pay some of the highest borrowing costs in Europe.

But SBCI chairman Conor O'Kelly - also chief executive of the National Treasury Management Agency - said banks were bypassing the SBCI because they have access to low interest rates on the open market.

The comments are contained in a letter to Finance Minister Paschal Donohoe and released under Freedom of Information rules.

"We have previously reported that the prevailing low interest rate environment has diminished the SBCI's financial advantage for banks," the letter states.

"This has been evident of late among the SBCI's bank on-lenders, as Bank of Ireland has prepaid €50m of its loan facility, and Allied Irish Banks and Ulster Bank have fully deployed their facilities and are not seeking further loan facilities at present," Mr O'Kelly's letter says.

The SBCI also has a number on non-bank entities on board to take money and pass it on. The letter, dated September 22 of last year, said the SBCI was "committed to developing its pipeline of non-bank on-lenders to continue driving choice for SMEs". However it has not secured a new on-lender since November of 2016.

Initially the lenders were responsible for repaying the SBCI, but the State body then went on to develop so-called "risk-sharing" products, where it is also on the hook if loans go bad.

Read more: SBCI should be repurposed as a rainy day lender for Ireland's SME sector

It has secured Ulster Bank and AIB participation in these schemes, which are separate to the facilities referred to in the O'Kelly letter. One scheme, which came into effect after the O'Kelly letter, is the Government's loan scheme for businesses hit by Brexit, which is administered by the SBCI. Another is focused on agriculture.

The SBCI said it "operates in an evolving market and needs to update its products and offerings as the economic environment changes".

"This has led to the SBCI successfully broadening supports to include risk-sharing ... risk sharing enables lenders to increase their credit risk appetite for SMEs requiring less collateral as security."

It said AIB and Ulster Bank "had not requested any additional liquidity" but were active participants in the risk-sharing Brexit and agriculture schemes. The SBCI also said it was working on new risk-sharing schemes with further announcements to be made in due course.

An Ulster Bank spokesperson said the bank has "a long-standing relationship with the SBCI" and has become involved with a number of initiatives that began after Mr O'Kelly's letter was sent, including the Brexit loan programme.

"Ulster Bank is committed to providing sectoral expertise and specialist financing and the SBCI products are one of a number of supports we offer for businesses."

An AIB spokesman said it had "has worked closely with the SBCI since its inception, and continues to do so", flagging its participation in the Brexit and agri-focused schemes.