State-guaranteed SME loans to be below market rates, Tánaiste says

Varadkar, Donohoe and McGrath meet AIB, Bank of Ireland and Ulster Bank chiefs

Tánaiste Leo Varadkar said work was ongoing to ensure “smooth return to regular repayments”. Photograph: Cyril Byrne

Tánaiste Leo Varadkar said work was ongoing to ensure “smooth return to regular repayments”. Photograph: Cyril Byrne


AIB, Bank of Ireland and Ulster Bank have committed to offering loans to small businesses under a €2 billion State guarantee scheme at costs that will be “significantly below” market rates, said Tánaiste Leo Varadkar.

Mr Varadkar made the comments after he, Minister for Finance Paschal Donohoe and Minister for Public Expenditure and Reform Michael McGrath held meetings with the chief executives of the three banks between Wednesday and Thursday.

The planned scheme, legislation for which is expected to be pushed through next week, will guarantee up to 80 per cent of loans. Mr Varadkar previously said that offering 100 per cent guarantees would not be the right move, as banks had to have “skin in the game” when writing loans.

It is understood that the banks’ practice of continuing to charge interest on loans subject to Covid-19 loan payment breaks also came up during the meetings, even though the European Banking Authority clarified last week that the loans would not necessarily fall into default territory if interest were not applied. The breaks are available for a maximum of six months.

However, the statement from the three Ministers said only that “work is ongoing at the highest levels to ensure a smooth return to regular repayments” for customers availing of the relief, and that those who will have difficulty doing so “will be supported with a range of options so that a manageable repayment can be agreed”.

Donohoe remarks

Earlier, in the Dáil, Mr Donohoe said there was a cost relating to the offering of payment breaks that needed to lie somewhere, but that he wanted to ensure that banks were not profiteering from the crisis.

Goodbody Stockbrokers estimates that the non-accrual of interest on the 70,000-odd mortgages in the Republic subject to payment breaks could cost banks up to €150 million of lost income over six months.

Mr Donohoe added that market estimates for the banks ahead of the release of their first-half results in the coming weeks suggest that “we will see that the kind of profit that the banks were making last year and in recent years is no longer the case”.

The consensus view among analysts is that the Irish banking industry will be loss-making this year as lenders set aside large provisions for bad loans.