5th Jun 2023

EIB in spotlight as leaders eye increased business lending

  • Lending to businesses has fallen in each of the last 12 months (Photo: Images_of_Money)

The European Investment Bank (EIB) was in the spotlight on Thursday (27 June) as EU leaders examined ways to boost lending to Europe's cash-strapped businesses.

The communique expected to be endorsed at the end of the summit urges the EIB to "implement its plan to increase its lending activity in the EU by 50% over 2013-2015."

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It also called for greater cooperation between national development banks and the EIB to increase opportunities for co-lending.

Meanwhile, a joint paper presented at the summit by the European Commission and the EIB, suggested that merging EU structural funds together with EIB money could re-launch an EU securitisation market and leverage up to €100 billion. Representatives from the EU's executive arm and the EIB are expected to report back at the October summit.

EU officials are keen to use the EIB to ease the credit crunch faced by small businesses. Loans to businesses have contracted every month for the past year, with lending conditions particularly tight in the countries worst affected by the eurozone debt crisis and economic stagnation.

Member states agreed to provide an additional €10 billion of equity for the EIB in June 2012 as part of a so-called Growth and Jobs pact, with leaders claiming that this could be leveraged to facilitate €60 billion in extra lending.

The Luxembourg-based bank's lending operation in the EU totalled €44.7 billion in 2012, with the bank pledging to increase lending to €62 billion in 2013 followed by €60 billion in 2014 and 2015.

However, there remain doubts that the extra funds will lead to higher lending.

EIB boss Werner Hoyer, a former minister in Angela Merkel's German government, is reluctant to risk lending that could jeopardise the banks triple-AAA credit rating.

Prior to the summit talks, a European Council official voiced frustration at the bank's apparent reluctance to lend. "We feel they haven't used the money boost enough, so we're looking at new ways to increase risk sharing," he said.

For his part, Dutch Prime Minister Mark Rutte told deputies in his national parliament on Wednesday (26 June) that retaining the EIB's credit rating was a priority for his government, warning that otherwise the bank would pay higher interest rates on the capital markets.

A German official said that concerns about the EIB's triple-AAA rating "are of course important," adding that reports on the activity of the Luxembourg-based bank indicated that "they use the money exactly as they are supposed to."

Carsten Brzeski, a senior economist for ING, described the 50 percent target as "highly ambitious."

"The biggest problem for this to fly is the credit rating of the EIB….up to now the EIB has been pretty reluctant to put on more risk," he told this website.

He also indicated that pooling structural funds and EIB money would be a better way to channel financial resources.

"Instead of increasing the lending capacity, moving towards more securitisation would probably work better. It would also bring the ECB on board," he said.

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