Fianna Fáil Finance spokesperson Michael McGrath has described the establishment of the Strategic Banking Corporation of Ireland (SBCI) as a half-hearted effort to tackle the problem of credit for the SME sector which falls well short of what is needed.
Deputy McGrath stated, “Over three and a half years ago, the Programme for Government promised a Strategic Investment Bank which would become ‘a lender to SMEs’. However even though it is called the Strategic Banking Corporation of Ireland, the SCBI is not a bank and will not actually have a banking licence. Instead, it will provide funding to existing banks who will be expected to “on lend” to SMEs. The fundamental flaw in this is that the credit decision will remain in the hands of the existing banks. These banks have hoarded capital over the last six years and it is likely that they will continue to take a very risk averse approach to lending. This means that many firms with viable business propositions will be denied the capital they need to invest and grow their business. In many instances it is not even investment capital to expand that firms are looking for, it is short term working capital to survive. A simple overdraft can be a life saver for many businesses.
“Cheap funding from the SBCI may help the banks’ profitability without improving credit flow in the economy. We know from the manner in which the banks have failed to pass on ECB rate cuts – which are designed to stimulate the economy – that they will solely act in their own interests and not consider wider economic concerns. The banks have stated that their primary focus is on rebuilding their net interest margin. While some would say that is what banks are meant to do, given the enormous investment of capital that was put in to the banks and the chronic shortage of credit, their actions most certainly do not concur with the needs of the economy.
“Other efforts to encourage non-bank funding have been completely inadequate to date. High profile announcements around seed capital, loan guarantees and microfinance have not been matched by delivery of funding. There has been a marked reluctance to properly assess the effectiveness of these schemes. Fianna Fáil is calling for the establishment of a full State backed enterprise bank as a means of addressing the permanent funding gap in the banking sector. An enterprise bank could be a permanent solution to the lending gap which exists in Irish banking. Its aim should be to lend to any company, regardless of sector or size, provided it can demonstrate its creditworthiness. There is potential for an enterprise bank to remain in State ownership even after the State has sold its stake in Bank of Ireland and AIB.
“There is also the outstanding issue of SME debt. Many businesses are burdened by servicing property loans which is weighing down otherwise profitable businesses. This problem has been long fingered by the Government and is a significant obstacle to growth in the SME sector.”