The Directors of the Strategic Banking Corporation of Ireland (“the Company” or “SBCI”) present their report and audited financial statements for the financial period from the date of incorporation of 12 September 2014 up to and including 31 December 2015 (“the financial period”).

The Company was established pursuant to the SBCI Act 2014 on 12 September 2014. The Company avails of national and international sources of funding for the purpose of providing lower cost funding to on-lenders who are required to pass on the advantageous rate to SME borrowers in Ireland.

On-lenders are banks or non-bank finance providers to whom the SBCI advances funding, who in turn deploy that funding in the provision of credit to eligible SMEs.

The Directors intend that the Company is re-registered as a designated activity company before the end of the transition period allowed by the Companies Act 2014.

Principal activities

The SBCI’s principal activities during the financial period were the initial set-up and commencement of operations, the sourcing of funding from international finance providers and State resources, and the provision of long-term low-cost lending to on-lending institutions for distribution to Irish small and medium-sized enterprise (“SME”) borrowers.

Business review and likely future developments

The Chairperson’s Statement and Chief Executive Officer’s Review report on the development and performance of the Company during the financial period, significant recent events and likely future developments. Further information on the SBCI’s strategy and business model is set out in the Strategy section (pages 8 to 9) while a comprehensive review of the operations of the SBCI is set out in the Business Review section (pages 10 to 16).

During the financial period, the Company focused on securing its initial funding from international funders and State resources as well as establishing its first on-lending facilities. The initial business model of the SBCI is to provide low cost wholesale finance to on-lenders (banks and non-bank finance providers) who in turn provide finance to SMEs. During the financial period, the following represents the key performance outturn:

• €790 million of committed funding sourced by the SBCI from European and State funders;
• €751 million of low cost funding facilities committed by the SBCI to on-lenders;
• €235 million advanced by the SBCI to on-lenders for the purposes of onward lending to SMEs;
• €172 million of low cost loans advanced by on-lenders to SMEs.

Principal risks and uncertainties

The principal risks and uncertainties facing the Company are detailed below. These risks reflect the current early stage of the SBCI’s development.

Strategic Risk

The SBCI relies on its product and on-lender strategy to meet its objectives in providing finance to SMEs. Should it fail to structure its products appropriately and deploy an appropriate strategy for delivering these, there is a risk that on-lenders will not participate as envisaged and SMEs will not purchase the offered products.

Credit Risk

The SBCI is exposed to the risk that a borrowing counterparty (i.e. an on-lender) defaults on its obligations and fails to repay its debt in full, resulting in losses to the SBCI. The SBCI’s direct credit risk exposure is to the on-lenders to which it lends, and does not extend to the final beneficiary SMEs.

Operational Risk

The SBCI is exposed to a broad range of operational risks arising from the people, systems and processes involved in meeting its objectives. Key operational risks include systems failures, process errors, over reliance on key individuals, failure to follow procedures, reporting errors, etc. which could ultimately result in the SBCI failing to meet its objectives and significant reputational damage.

Resourcing Risk

The SBCI is a small organisation that relies on skilled specialist professionals to meet its statutory objectives. There is a risk that the SBCI is not adequately resourced with the appropriate experience and expertise, resulting in failure to achieve its objectives.

Financial risk management

The Company is exposed to credit risk, market risk, liquidity risk, capital risk and concentration risk in the normal course of its business. Further details on how the Company manages these risks are given in Note 12 to the financial statements.

Directors

The Directors who served during the financial period are:

Conor O'Kelly (Chairperson) (appointed 12 January 2015)
John Corrigan (Chairperson) (appointed 12 September 2014 and resigned 5 January 2015)
Nicholas Ashmore (Chief Executive Officer) (appointed 12 September 2014)
Barbara Cotter (appointed 18 March 2015)
Tom McAleese (appointed 24 March 2015)
Rosheen McGuckian (appointed 27 March 2015)
Ann Nolan (appointed 12 September 2014)
AJ Noonan (appointed 18 March 2015)
Richard Pelly (appointed 18 March 2015)
Eilis Quinlan (appointed 18 March 2015)

Directors' interests

The Directors had no beneficial interest in the Company during the period or at the period end. The issued share capital of the Company is owned solely by the Minister for Finance.

Adequate accounting records

The Directors ensure compliance with the Company’s obligations with regards to keeping accounting records required under sections 281 to 285 of the Companies Act 2014, through the use of qualified accounting personnel and appropriate systems and procedures, as set out in the Statement on Internal Financial Control on page 29. The accounting records are kept at the Company’s registered office at Treasury Building, Grand Canal Street, Dublin 2, D02 XN96.

Results and dividends

The results for the financial period and state of affairs of the Company are set out in the Income Statement and Other Comprehensive Income and the Statement of Financial Position on pages 33 and respectively.

The Company did not pay any dividends during the financial period to its sole shareholder, the Minister for Finance and does not propose to pay any dividends for this financial period.

Events after the reporting period

Refer to Note 24 of the financial statements.

Auditor

The Comptroller and Auditor General (“C&AG”) is the Company’s auditor by virtue of section 19 of the Strategic Banking Corporation of Ireland Act 2014 (“SBCI Act 2014”).

Approved and authorised for issue by the Board of Directors and signed on its behalf:

19 May 2016