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Why the state’s new investment bank will do little to help Irish SMEs

The Strategic Banking Corporation of Ireland (SBCI) will be open for business this week.


THE STATE INVESTMENT bank set up to inject more cash into the small and medium enterprise (SME) sector will be open for business this week – but it probably won’t make a big dent in the financing demands of cash-strapped operators.

The Strategic Banking Corporation of Ireland (SBCI), which the government took the wraps off in May, will be officially up and running from Friday when European finance bosses are in town to sign over their funding.

The bank will dole out a €800 million pool made up of European and German development money, and Irish pension funds, to local lenders at discount rates with the proviso that the savings are passed on to SMEs.

The cash will go to existing Irish banks first to distribute first, but the government hopes the extra money will entice more entrants into the SME lending market through what it said would be “lower barriers to entry” for new financiers.

The SBCI was targeted at kick-starting lending to the sector amid complaints from business lobbyists that the banks were being too tight with the purse strings when it came to SME loans.

Cheaper money alone won’t get the cash flowing

But in a note this morning, Goodbody Stockbrokers said they remained unconvinced that “cheaper funding alone” was enough to get more cash flowing to SMEs.

Analysts said the €800 million funding pool was likely to equate to only about 3% of the SME loans which were not related to property that were feeding in the lending system.

On a more positive note though, we are more encouraged for lending prospects in this sector given the strong macro-economic trends, particularly on domestic demand, which should more meaningfully feed through for new lending prospects,” they said.

Total borrowings for domestic SMEs have been on the slide over the past three years, although lending has finally started to increase in recent months as the economy has kept on its upward trend.

SME finance

Source: Central Bank,


Small business groups have also been tentative in their praise of the SME funding boost, claiming the banks will keep cherry picking only the safest loans to the largest, best-established businesses rather than injecting funds into the companies that need it the most.

But lenders have been quick to counter the criticisms with recent figures from the Bank of Ireland showing they had approved 87% of SME loan applications in the year so far for a total of €3.2 billion in funding.

READ: Irish small businesses are still too old-school when it comes to getting loans >