AIB will pass on the cheaper rate of funding from the EIB to SMEs who apply through the fund. The discount is 1.25%, which means the lending rate on the fund will be 5.25%.
Speaking at a press conference in Dublin yesterday to announce the deal, EIB president Werner Hoyer said this was his fourth time in Dublin since he took over the top job 16 months ago.
He said the bank has no hesitation in lending to the Irish economy.
“We admire the Irish people for what they went through,” he said, adding the country was on the right track to exit the EU/IMF bailout programme in November.
The fund will be open to mid-cap size companies. Mr Hoyer said these companies are often too small to access capital markets and too big to tap SME funds.
AIB chief executive David Duffy said this fund would not ‘crowd out’ other lending initiatives his bank has geared towards the SME sector. AIB along with the other domestic banks have been given targets by the Central Bank to tackle SME loan arrears.
He said a significant amount of SME loan arrears stemmed from property investment. In the case of viable businesses, the bank would look to park this debt in some cases and write off un-sustainable debt in other cases, he added.
Moreover, businesses in arrears would not be excluded from applying to this fund, he said.
Throughout last year, banks blamed low levels of lending on lack of demand by SMEs. There has been a turnaround over the past six months with tentative signs of a stabilisation and a pick up in demand, according to the AIB chief.
The fund is open to companies in all sectors except those in the arms trade and gambling.
ECB president Mario Draghi has said over the past number of months that constraints on the credit flow to the SME sector was a huge problem across the eurozone which was choking an incipient recovery.
There is speculation that Mr Draghi will announce a “big bazooka” to boost SME lending. It is believed that one of the options being looked at is opening up a credit line between the ECB and the EIB.
Mr Hoyer said the “EIB is always in discussions with the ECB”, but declined to comment on any individual proposals.
Jobs, Enterprise and Innovation Minister Richard Bruton, said that providing better access to finance for business is a central part of the Government’s action plan for jobs.
“Small business is the backbone of the economy. A new Central Bank study found that it is responsible for a significant amount of job creation.
“[The] announcement that the European Investment Bank along with AIB will provide an additional €200m for SMEs in Ireland is a major boost for Irish business and jobs,” he said.