European Investment Bank to offer €200 million in discounted loans for Irish SMEs

Hundreds of small and medium-sized Irish companies will get access to cheaper loans following the European Investment Bank's decision to make €200 million available to SMEs here through AIB.

Companies with up to 3,000 employees will be able to apply to AIB for funding of up to €300,000 at a rate of 5.25 per cent. This represents a discount of 1.25 per cent to AIB’s usual standard variable rate for SMEs.

This latest funding announcement follows two tranches totalling €250 million in recent years from the EIB for Irish small businesses via AIB.

"The drawdown has been 100 per cent and that alone is protecting thousands of jobs in the SME community in Ireland," AIB chief executive David Duffy said yesterday.

Mr Duffy said there was evidence some sectors were beginning to turn, outside of agriculture, multinationals and foreign direct investment in recent years. He said the EIB funding was “critical” to copperfasten that turnaround for various sectors, including hotels, which he said were experiencing an increase in activity.

EIB president Werner Hoyer said this was the bank's largest scheme for SMEs in Ireland and the first to include "broad eligibility" for mid-cap companies here. It is its 11th lending programme with AIB since 1990.

Strong support
Mr Hoyer said the new funding demonstrated its "strong engagement" to supporting small and mid-cap businesses in Ireland. He had no concerns about the money being repaid to the EIB. Mr Hoyer said the EIB had "strong confidence" in Ireland's ability to exit its bailout programme and return to global financial markets.

The EIB is a not-for-profit organisation that provides loans across the European Union’s 27 member states at low interest rates. In 2012, the EIB provided €13 billion to more than 200,000 firms across Europe.

It provided nearly €505 million in long-term, low-cost loans to Ireland last year for investment in projects, including at Trinity College Dublin and UCD, and in renewable energy and waste.

Yesterday, Minister for Transport Leo Varadkar announced his department was in discussions with the EIB for loans to fund the Luas cross-city tramline and major road projects.

Mark Fielding, chief executive of the Irish Small and Medium Enterprises Association, welcomed the funding, albeit with a caveat. “We assume that the original figure committed to by AIB of €4 billion will be increased by this EIB amount and will be loaned as new and additional funds as distinct from recapitalisation and replacement of overdrafts with term loans, as has been the practice heretofore.”

Mr Duffy confirmed yesterday the EIB funding would form part of its €4 billion lending figure to SMEs this year.

Richard Bruton, the Minister for Jobs, Enterprise and Innovation, also welcomed the EIB's announcement, saying it was important to put a range of "funding instruments" in place for Irish businesses.

Separately, Mr Duffy said AIB would meet the Government’s direction to reduce its total payroll expenses by 6 to 10 per cent on foot of a report from consultants Mercer earlier this year.

AIB, Bank of Ireland and Permanent TSB are expected to submit their plans to the Department of Finance in the next fortnight. Mr Duffy declined to comment on whether this would include him taking a pay cut saying it would not be “discreet” to announce this before writing to Minister for Finance Michael Noonan.

Salary cut
Mr Duffy noted he had taken a 15 per cent cut to the salary he agreed on taking the job.

He said that he would prefer the next set of capital stress tests to coincide with reviews next year by the European Banking Authority rather than ones planned here this year.

In addition, Mr Duffy said AIB’s plan to reduce its cost base by €350 million, or more than 20 per cent, was “deliverable” within the context of the overall AIB group.

He said the recent increase in the bank’s standard variable mortgage rate was “regrettable” but reflected the cost of funding the institution is having to bear.