Legislation to enable the establishment of the Strategic Banking Corporation of Ireland (“SBCI”) has been published and the Government has announced its intention to enact the legislation before the Summer recess (end of July 2014) so that the SBCI can be established and operational by the end of 2014. Its establishment is to facilitate access to national and international sources of funding and then to distribute such funding/credit to existing and new providers of credit to SMEs in Ireland.

The new strategic bank, SBCI will act as an intermediary or bridge between its capital providers, including the German State bank KfW, the European Investment Bank, Irish Strategic Investment Fund and other potential funders to achieve the Government’s objective of providing loans to individuals and SMEs across all domestic industry sectors in Ireland.

The schematic diagram published by the Department of Finance (see www.finance.gov.ie) sets out a mode of operation where the current retail banks in Ireland will act as the distribution platform. The government also anticipates and seeks to encourage new entrants into the Irish SME lending market following the reduction in number of credit providers over the last decade.

The explanatory memorandum accompanying the publication of the Bill states that the SBCI seeks to remedy a disturbance to the economy caused by the disrupted and uneven flow of credit to enterprises and individuals. The SBCI will lend strategically and will in particular focus on credit needs of SMEs in the first instance. Other areas of the economy whose credit needs are not fully served will also be helped in time by the SBCI.

Summary of key provisions – Functions and Funding

Functions of SBCI (Part 2 section 8) includes the following:

  1. To provide, and promote the provision of, additional credit in a prudent manner to enterprises or other persons in the State, in particular SMEs,
  2. To design or cause to be designed credit facilities which consistently address the financial needs of borrowers, in particular SMEs, be they related to growth, investment or operational needs,
  3. To promote competition in markets for the provision of credit to borrowers, in particular SMEs,
  4. To encourage an increase in the number of providers of finance to borrowers in the State,
  5. To encourage the entry to the market of new providers of credit,
  6. To contribute to the diversity of types of finance available in the State,
  7. To source international funding to facilitate lending,
  8. To provide finance to projects which promote the economic development of the State
  9. To facilitate the operation of diverse credit markets.

The SBCI may, with the consent of the Minister for Finance, promote, take part in the formation of, or acquire a shareholding in, an SBCI group entity (s.6) to achieve its purpose and fulfil its functions.  SBCI group entity is defined (s.3) as:

  1. A subsidiary of the SBCI, or
  2. A company (wherever incorporated) or any other body corporate and any trust, partnership, arrangement for the sharing of profits and losses, joint venture, association, syndicate or other arrangement formed, registered, incorporated or established by the SBCI for the purpose of performing any of its functions under the Act.

Funding of SBCI (Part 3 sections 11-17)

The SBCI may borrow in any currency and create any type of instrument or securities for the purpose of borrowing. The borrowing limit set out in the Act is €4,000,000,000 (four billion euro) (s.13(3)).

The maximum of State funding to SBCI is capped at €5,000,000,000 (five billion euro)(s.16(1)) and interest on any borrowings, liabilities and obligations of the SBCI or any SBCI group entity shall not be taken into account in calculating the total aggregate amount of funding.

Ministerial Guarantees (Part 4 section 18): Section 18 provides that the Minster may (but is not obliged to) guarantee the repayment obligations of the SBCI. The aggregate of the principal of all guarantees outstanding exclusive of accrued interest, shall not exceed €4,000,000,000 (four billion euro). Any such guarantee is required to be laid before each House of Parliament as soon as may be after it is given. Prior notice or consent is not required.

General   

The SBCI will be formed as a private company under the Companies Acts (Ireland) and will be subject to such legislation save where specific statutory derogations have been legislated for.

The National Treasury Management Agency (NTMA) will provide the SBCI with business and support services including assigning staff to the SBCI to carry out its functions. In particular the NTMA shall provide treasury services to the SBCI.

If the Government achieves its objective in passing the legislation prior to Summer recess 2014, the next task will be to establish the board of nine members and appoint its Chief Executive Officer.

The establishment on a statutory basis of the SBCI is another step forward and a task completed by the Government in its plans to energise funding into SME sector which is the lifeblood of the Irish economy. The SBCI working through and with the pillar banks, AIB and Bank of Ireland and new entrants, by policy of co-operation, encouragement and partnership with all credit providers should serve to continue and enhance economic recovery as we advance to the second half of 2014.