SME lending high on the agenda of ECB meeting

Lending levels to Irish SMEs are said to be high on the agenda at tomorrow’s ECB meeting, with the bank considering unveiling a "big bazooka" to aid access to finance for small firms across the country.
 
With Ireland’s banks attempting to repair their balance sheets, many lending products are seeing interest rates increased as a result. Indeed the majority of banks throughout the eurozone are in the process of deleveraging.
 
As a result, lending levels, particularly to the SME sector, are significantly below the trend rate.
 
This is a concern, particularly as SMEs generate the highest amount of employment and economic activity in the eurozone. Without a helping hand to this sector the likelihood of a durable recovery is slim.
 
Subsequently the ECB has been looking at ways of boosting lending and access to finance. In recent months it has been locked in discussions with the European Investment Bank (EIB) about developing a securitisation model for SMEs.
 
The EIB would play a leading role in the formation of a securitisation model, by pooling together SME loans and creating a liquid market for these assets to be shared.
 
As a result, banks would be in a position to use these asset-backed securities as collateral with the ECB in return for liquidity – offering a greater incentive for banks to lend to small firms.
 
Financial strategists believe a "big bazooka" announcement tomorrow is unlikely, but it is plausible the ECB will seek to outline its plans to develop a securitisation market over the next year.
 
ECB president, Mario Draghi is also expected to discuss plans for EU banking union at tomorrow’s meeting, with the commission keen to settle on a single resolution regime and fund within the EU with the power to close down banks.

Date published 5 Jun 2013 | Last updated 5 Jun 2013