New banking initiative to cut up to 2% off loans to SMEs

State-backed bank will channel €400m into sector via AIB and BoI

The rates charged on loans from the new State-backed Strategic Banking Corporation of Ireland (SBCI), established to kick-start lending to SMEs, will be up to 2 per cent cheaper than current market rates.

As part of the first phase of its programme, the bank, which is backed by German, European and Irish money, will channel €400 million of funds into the sector through AIB and Bank of Ireland.

This will be followed by an additional €400 million later in the year, with up to €5 billion available over the next five years should demand require it.

Under the initiative, AIB and Bank of Ireland will from next month offer SBCI loans of up to €5 million at discounted rates for periods of between two and 10 years.


Under the initiative, a typical five-year €400,000 business loan is likely to cost an SME borrower €15,000-€20,000 less than the current market cost over the lifetime of the loan.

The initial line of SBCI products will also include a refinancing facility for firms whose current loans are with banks exiting the Irish market and a special investment loan product tailored specifically for SMEs in the agribusiness sector.

Under the SBCI eligibility criteria, the loans cannot be used for purchase of land, commercial real estate or livestock, in the case of farmers.

To coincide with the announcement, AIB confirmed plans to reduce its standard variable business loan rate by 2 per cent to 4.5 per cent, saying it was matching the 1 per cent discount it was receiving from the SBCI with a further 1 per cent of its own.

A spokeswoman said the SBCI loans would be the “products of choice” offered to eligible SMEs and that prospective loan applicants would not have to specifically request them.

Bank of Ireland confirmed its participation in SBCI’s new lending scheme, saying rates on business loans now ranged from 3.7 per cent to 6.4 per cent.

It remains to be seen if other lenders such as Ulster Bank and Permanent TSB will seek to access SBCI funding in a bid to compete with the reduced rates offered by the two pillar banks.

SBCI chief executive Nick Ashmore, however, said the next tranche of funding would be spread further afield in order to promote competition within the Irish banking sector.

“In the months ahead, we will make SBCI loans available through other banks that are already active here, as well as supporting existing and new specialist SME lenders in the Irish market thereby increasing competition,” he said.

Mr Ashmore also intimated that the funding could be withdrawn from banks if they failed to deploy the money correctly.

Minister for Finance Michael Noonan hailed the launch of the bank as a "red letter day" for the economy that would cement the economy's ongoing recovery.

However, Fianna Fáil’s Dara Calleary dismissed the initiative, saying the Government was still using the two banks that had played such a pivotal role in denying businesses credit for years.

The initial €800 million tranche of SBCI funding was financed with a €150 million from Germany's state-owned KfW bank; a €150 million from the European Investment Bank and a further €500 million from the Ireland Strategic Investment Fund.

Charlie Taylor

Charlie Taylor

Charlie Taylor is a former Irish Times business journalist

Eoin Burke-Kennedy

Eoin Burke-Kennedy

Eoin Burke-Kennedy is Economics Correspondent of The Irish Times