The president of the European Investment Bank has warned that the credit shortage for small and mid-sized firms will probably worsen as a result of tighter financial regulation in the banking union initiative.

Werner Hoyer, who meets Taoiseach Enda Kenny today, was speaking in Dublin yesterday after the EIB signed a deal to provide €150 million for the Luas interconnection project.

Although the EIB has partnered with Allied Irish Banks, Bank of Ireland and Ulster Bank to distribute funding for SMEs, Mr Hoyer said there were limitations on what the Luxembourg-based institution could do. In the view of the EIB, complaints from credit-starved SMEs are not unique to Ireland.

“This problem will not disappear overnight,” said Mr Hoyer, who was Germany’s deputy foreign minister before taking charge of the EIB in 2012.

Regulation
"It probably will even get worse because the effects of banking regulation, banking union, will be that it is going to be even more difficult for commercial banks to finance more SMEs because the bureaucracy is enormous. The appraisals of these projects are getting more and more difficult and the observation of all the new rules which banking regulation brings about is costly for the bank."

Asked about concern in government and business circles about the lack of credit for SMEs, he said the EIB tries to speed up the lending process.

At the same time, he insisted that he had no particular concern that Irish banks were not using the money they had received from the EIB.

“I wouldn’t want to blame them for not doing the job correctly, that would not be fair,” he said. “But, on the other hand, I’m aware that the banks here are still in a difficult position. We can only mitigate that problem.”