Non-bank lending ‘hub’ in Dublin

The Government hopes to make Dublin a hub for a eurozone non-bank lending market, according to the secretary general of the Department of Finance, John Moran.

Speaking at the European Insurance Forum in Dublin, Mr Moran said that Ireland experienced similar problems to the rest of the eurozone in the wake of the financial crisis: companies were far too reliant on traditional bank funding. Consequently, following the collapse of the financial system, the flow of credit became massively constrained.

And because of new regulatory capital requirements known as Basel III, bank lending will become much more financially prohibitive. Mr Moran said the eurozone needed to develop non-bank lending models. These included a securitisation market for SMEs; insurance companies investing directly in infrastructure projects; a corporate bond market; and private equity.

This presented opportunities for the IFSC as the eurozone market in these different areas integrates further, particularly as a regulatory hub, said Mr Moran.

Mr Moran’s views chime with a new research paper released by the ESRI, which was written by Conor O’Toole and Eddie Casey.

They looked into the behaviour of SMEs that have been denied credit over the past few years.

“Our findings suggest that credit-rationed firms are more likely to apply for and use trade credit.”

The authors conclude that these findings have a number of implications for government policy.

“As trade credit appears to be a primary substitute for firms rejected for bank lending, this may highlight a lack of other alternatives...

“Broadening the mix of financing availed of by European SMEs should therefore be an important policy objective at both EU and member state levels.”