Paschal Donohoe 'cautious' of 100% State-backed loans for SMEs

Finance Minister Paschal Donohoe has signalled caution over the inclusion of 100% State-backed loans in the SME credit guarantee scheme element of the Government’s pending multi-billion stimulus package for the economy.
Paschal Donohoe 'cautious' of 100% State-backed loans for SMEs
Paschal Donohoe, Finance Minister.

Finance Minister Paschal Donohoe has signalled caution over the inclusion of 100% State-backed loans in the SME credit guarantee scheme element of the Government’s pending multi-billion stimulus package for the economy.

As part of a reboot of an existing SME scheme, the Government will guarantee up to €2bn of loans from Bank of Ireland, AIB and Ulster Bank. The current proposal is for the State to guarantee the banks against 80% of any losses from each loan, while the banks will guarantee the remaining 20%.

The Government has been criticised for lagging other EU countries in its level of financial support for Covid-hit businesses. New figures, this week, showed that Britain has delivered nearly one million loans – with a combined value of €32bn – to companies through its 100% Government-backed loan scheme.

Opposition parties here have called for 100% State-backed loans to be included in the credit guarantee scheme for SMEs and employers’ group Ibec said such loan terms are essential for small firms to recover.

“We’re clearly looking at options to better meet credit and working capital needs of Irish companies. However, I remain strongly of the view that those who are lending out that credit and making money available should have a stake in ensuring that this is a successful loan that is right for the person or company taking it and that they have an ability to recover that loan in the future,” Mr Donohoe said.

A spokesperson in the Department of Finance said it remains too early to call if 100% state-guaranteed loans will be part of the mix, but they said the Minister is cautious about their inclusion. Tánaiste Leo Varadkar has also warned against the State taking on all of the risk from business loans.

“We are looking at options in relation to the credit guarantee scheme and how that can be even more effective,” Mr Donohoe said.

He said that while he understands the growing demands for additional support from different sectors of the economy, if he was to meet every single demand the sum total could easily exceed the amount of tax the Government will collect this year.

The Finance Minister said in its efforts to stimulate the recovery, the Government must acknowledge that the State will have a budget deficit of at least €30bn – or 7.5% of national income – this year.

He also said the Government is looking at a number of different options in relation to how VAT can continue supporting the economy, but didn’t suggest rate cuts are pending.

Mr Donohoe was speaking as the National Asset Management Agency – or NAMA – published its 2019 annual report and reiterated its projection, depending on market conditions, for a €4bn surplus in its lifetime which runs to 2025, having last year been extended from a wind-down date of 2021.

NAMA said it had completed payment of €2bn to the exchequer and will pay the remainder of the overall €4bn surplus by the end of 2022.

Chief executive Brendan McDonagh said he remained confident that NAMA will hit its €4bn surplus target and will be able to pay the remainder in full over the next two years.

Mr McDonagh said NAMA has received four submissions from developers for its ambitious Poolbeg West project in Dublin and will select a preferred partner in the not too distant future. Poolbeg West will feature a mix of residential housing – including social and affordable houses – retail outlets and a school, with the project being “akin to building a new town,” according to NAMA chairman Aidan Williams.

Meanwhile, the National Treasury Management Agency – or NTMA – will hold a bond auction on July 13. It will look to raise a further €750m through the sale of two bonds; made up of 25-year debt with a 2% interest rate attached and two-year debt at a rate of 0.8%.

The NTMA has already raised around €19bn of its €20bn-€24bn funding target for this year.

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