German loan likely to include SME clause

The German money being put into the new Strategic Banking Corporation of Ireland (SBCI), along with money from the European Investment Bank and the National Pension Reserve Fund, is likely to come with a clause saying it is only for small and medium-sized firms.

The bank would not comment on the specifics of the arrangement yesterday as the issue is to go to a final vote of the board of the KfW in the coming weeks. “We’re delighted by the progress made by the Irish Government and presented by the Irish Government [yesterday],” said Dr Christian Krämer, first vice-president of KfW management affairs.

The KfW will have no direct dealings with Irish institutions but merely provide a global loan to the SBCI. It in turn will lend to Irish commercial banks who make loan applications on behalf of their SME customers. Agreement Officials familiar with the deal said the operating terms of the new Irish bank is likely to include a clause in loan agreements to ensure only SMEs are the recipients of loans.

Long-standing KfW loan practices already address concerns similar to those raised by Irish SMEs yesterday, that their banks would give preferential loan treatment to larger companies.

Banks in other European countries drawing down similar KfW-backed global loans via institutions similar to the SBCI are obliged to fill out applications confirming the loans are targeted at SMEs as defined by the European Commission. The so-called KMU classification defines SMEs as employing between 10 and 250 people with a balance sheet total of a maximum of €43 million. Definition The KfW applications draw on this definition for its loan application documents. "I assure that the applicant described here is an independent company without linkages to other companies," notes one loan application document designed to ensure applications "meet the KMU-definition".

The KfW is a public bank that uses its quasi-sovereign status to provide development loans at lower interest than commercial rates.

Its official name – the Kreditanstalt für Wiederaufbau (Reconstruction Loan Corporation) – gives an indication of its origins: to help reconstruction of war-ravaged Germany.

In the 65 years since its foundation, the KfW has provided €1.3 trillion in loans. Originally it operated as a conduit for Allied aid provided through the Marshall Plan to relieve postwar housing shortages. It is 80 per cent owned by the federal government with the remainder held by Germany’s federal states, and is one of Germany’s largest banks with a balance sheet of €476.4 billion.

Last year the bank raised almost €80 billion through bond issues on capital markets to support its lending programmes.