The Annual Report 2016 forms part of the Directors’ Report.

The Directors of the Strategic Banking Corporation of Ireland (the “Company” or “SBCI”) present their report and audited financial statements for the financial year ended 31 December 2016 (the “financial year”).

The Company was incorporated pursuant to the Strategic Banking Corporation of Ireland Act 2014 (the “SBCI Act 2014”) on 12 September 2014 and converted to a designated activity company under the Companies Act 2014 on 28 July 2016. 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 small and medium sized enterprise (“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.

Principal activities

The SBCI’s principal activities during the financial year were sourcing further funding from international finance providers and State resources, and the provision of long-term low-cost finance to on-lending institutions for distribution through the supply of credit to SME borrowers in Ireland.

Business review and likely future developments

The Chairperson’s Statement and Chief Executive Officer’s Review in the Annual Report outline the development and performance of the Company during the financial year, significant recent events and likely future developments. Further information on the SBCI’s strategy and business model is set out in the Strategy section of the Annual Report while a comprehensive review of the operations of the SBCI is set out in the Business Review section of the Annual Report.

During the financial year, the Company focused on sourcing further funding from international funders and State resources, securing additional funders as well as increasing the number of on-lending facilities. The initial business model of the SBCI was 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 year the SBCI took on the role of manager and operator of the Credit Guarantee Scheme on behalf of the Minister for Jobs, Enterprise and Innovation. During the financial year, the following represents the key performance outturn:

• €450m of additional committed funding facilities sourced by the SBCI under agreements signed with two new funders;
• €155m of additional low cost lending facilities committed by the SBCI to three new on-lenders;
• €420m drawn down by the SBCI’s on-lenders for the purposes of onward lending to SMEs;
• €377m 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.

Strategic Risk

• The SBCI relies on demand from on-lenders and SMEs in order to meet its key strategic objective of providing additional credit to SMEs in Ireland, and in order to achieve financial sustainability. 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 avail of the offered products.

Credit Risk

• The SBCI is exposed to the risk that a borrowing counterparty defaults on its obligations and fails to repay its debt in full, resulting in losses to the SBCI. The SBCI’s primary credit risk exposure is to the on-lenders to which it lends. However, in 2017, the SBCI will assume some credit risk exposure, on a limited basis, to the final beneficiary SMEs whose loans are covered by guarantees issued by the SBCI to on-lenders.

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 Company policy and how it manages these risks are given in Note 13 to the financial statements.

Directors

The following were Directors at any time during the financial year:

Conor O’Kelly
Nicholas Ashmore
Barbara Cotter
Tom McAleese
Rosheen McGuckian
Ann Nolan
AJ Noonan
Richard Pelly
Eilis Quinlan

Directors’ interests

The Directors had no beneficial interest in the Company during the financial year or at the financial year end (See Note 24). The issued share capital of the Company is owned solely by the Minister for Finance (See Note 21 and 25).

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 8. 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 year 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 34 and 35 respectively.

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

Events after the reporting period

Refer to Note 25 of the financial statements.

Auditor

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

Each of the Directors has taken all the steps that he or she ought to have taken as a Director in order to make himself or herself aware of any relevant audit information and to establish that the C&AG is aware of that information.

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

12 April 2017