Banking and Finance in Ireland Over the Last 12 Months

As 2020 drew to a close, lenders, borrowers and other finance professionals had well and truly adjusted to the "new normal" and remote working lockdown restrictions had very little noticeable impact (in certain sectors, at least) on deal size or volume, which continued at pre-pandemic rates into Q1 and Q2 2021.

Now, as vaccination rates across the world continue to rise and as lockdown restrictions are lifted, it will be interesting to see if there will be a return to "business as usual" or whether the COVID-19 pandemic has changed the market irreversibly


Impact on the economy

There were 169 corporate insolvencies in first half of 2021, a decrease of 38% on the same period last year so, on the face of it, a more positive outlook for the year ahead. These figures likely do not tell the whole picture, with rating agencies forecasting an increase in non-performing loans for the rest of 2021 and the true scale of the impact of COVID-19 on the economy only to be revealed as the government phases out their pandemic-related supports over Q4.

Certain sectors of the economy were more insulated from the COVID-19 pandemic than others and during 2021, there have been many new financings provided by the Irish pillar banks, international funders and alternative lenders in, amongst others, the real estate investment sector as well as in the development finance space and, in particular this year, the leveraged acquisition market. The latter has experienced high volumes of activity since the beginning of 2021, as a result of, amongst other reasons, pent-up investor appetite to invest capital and take advantage of new opportunities arising as a result of the COVID-19 pandemic. 

Against this backdrop, the government published its Economic Recovery Plan (ERP) on 1 June 2021 wherein it outlined its plans to achieve rapid job creation and economic growth after the pandemic. In addition to the existing pandemic supports set out below, the ERP set out a range of new supports for the next stage of recovery, including a small company administrative rescue process (SCARP) discussed in detail below.

Existing COVID-19 pandemic supports

The largest state-backed loan guarantee scheme in the history of the Irish state, the Strategic Banking Corporation of Ireland's COVID-19 Credit Guarantee Scheme (the "Guarantee Scheme"), which offers an 80% guarantee to facilitate up to EUR2 billion in lending to participating small and medium sized enterprises is scheduled to end on 31 December 2021 having already been extended from its original end date of 31 December 2020. As at the time of writing some 6,200 loans representing 20% of the EUR2 billion fund, have been granted and drawn down to date.

The figures reveal that, of the loans drawn under the Guarantee Scheme to date:

  • 19% were to the wholesale and retail sector;
  • 14% were to the food services and accommodation sector;
  • 14% were to the construction sector;
  • 12% were to the agriculture, forestry and fisheries sector; and
  • the balance were to, among others, the manufacturing, administrative services and transport and storage sectors.

Though the Guarantee Scheme offers much needed support for those businesses, global ratings agency Fitch Ratings has sounded a more cautious note saying uptake has been "extremely low" and was "unlikely to increase significantly".

Despite the low figures, Minister for Finance Paschal Donohue commented that the low uptake in the Guarantee Scheme is in fact a sign of the success of the government's other pandemic supports. He also said that the low demand for debt is a consistent feature of the Irish SME (small and medium enterprises) environment and that he expected an increase in application to the Guarantee Scheme once restrictions are lifted.

The SBCI's COVID-19 Working Capital Scheme, which provided loans from EUR25,000 to EUR1.5 million, closed to new applications with effect from July 2021. This scheme was one of the first supports to be introduced in March 2020 as an immediate response to the impact of COVID-19 on SMEs in Ireland and was phased out in light of SMEs' preference for the Guarantee Scheme.

Continuation of pandemic support

However not all pandemic supports are ceasing, with no strict end date to Microfinance Ireland's (MFI) COVID-19 Business Loan, which provides loans from EUR5,000 to EUR25,000 to micro enterprises. MFI was the first support to market in March 2020 with a EUR20 million COVID-19 loan fund of initially offering loans of up to EUR50,000. This initial loan fund was fully utilised by midsummer but following the receipt of additional EUR15 million in funding, a new fund was launched with a reduced loan limit of EUR25,000 in late August 2020. Over EUR21.8 million in loans have been approved since its introduction to 848 businesses representing four times its normal annual lending rate. 

The Irish Strategic Investment Fund's (ISIF) EUR2 billion Pandemic Stabilisation and Recovery Fund continues to make capital available to medium and large enterprises on commercial terms. In contrast to the other supports mentioned above, in 2020 the ISIF made a small number of overall loans, just twenty in total, but accounting for over EUR400 million of lending to Irish enterprises in a wide range of sectors. There is a further EUR600 million of potential lending in the pipeline for 2021 across approximately six transactions concentrated in the aviation and tourism/hospitality sectors.

It seems as though many businesses are wary of taking on further debt in the hope of riding out the storm. But with the horizon for reopening the economy by no means clear, many SME's may be forced to rethink this strategy.

The Companies (Miscellaneous Provisions) (COVID-19) Act 2020 (the "Covid Act")

Like the Guarantee Scheme, the application of the Covid Act was extended from 31 December 2020 to 31 December 2021. The Covid Act amended Irish company law that had created challenges for Irish companies following the onset of the pandemic. The main changes provided was to increase the protection period in an examinership up to 150 days (up from a maximum of 100 days) in exceptional circumstances and to increase the threshold at which a company is deemed unable to pay its debts to EUR50,000 (up from EUR10,000, or EUR20,000 where two or more creditors are acting together).

The examinership process has traditionally experienced very low levels of uptake and only three petitions made in the first half of 2021 (compared to seven on the same period in 2020). There is a considerable amount of work involved prior to any court application and though the increased thresholds are a welcome development one wonders if more could be done to encourage uptake of this proven corporate rescue option. The introduction of the Rescue Act for small and micros companies (SMCs) as discussed below might help to chance the mind set on availing of a corporate rescue plan.

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Originally published by Chambers and Partners in October 2021.

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