MEMBERS of the Holyrood committee expressed surprise as the Scottish National Investment Bank (SNIB), founded by the SNP, revealed that it had only generated £10 million from its £460 million taxpayer-funded investments.
During a rigorous questioning session on Tuesday, CEO Al Denholm, who took office earlier this year after an extensive selection process, acknowledged that the bank anticipated recovering only about £1 million of the £9 million invested in Circularity Scotland. However, this figure was contested by committee convener Edward Mountain.
Previously, SNIB had come under scrutiny for its funding allocation to Circularity Scotland, a deposit return scheme operator, by various news outlets. Notably, this financial support was extended before the Scottish Government obtained full permissions for the recycling project. However, the project faced a significant setback when the UK government granted an exemption for the UK Internal Market, excluding glass from the scheme. These events occurred during Lorna Slater’s tenure as the company’s leader, ultimately leading to Circularity Scotland entering administration and causing substantial job losses.
Denholm, admitting that they were going to learn lessons from this experience, optimistically, expressed hope that the bank could potentially recover £1 million from the investment, stating. “We invested £9 million in Circularity Scotland a few years ago for the debt facility. At that time, we estimated a write-off of £4.5 million in our latest annual report. We also indicated an expected recovery of about £1 million, although this is contingent on the administrative process. This estimate appears reasonable based on the information we have. At that time, Circularity Scotland’s business case seemed promising due to widespread support for the scheme across devolved governments. However, nuances in the internal market act, a new legislation from 2020, proved challenging and untested.”
Mountain raised concerns about the £1 million estimate, considering the lack of substantial assets to sell and the typical prioritisation of creditors after HMRC. He questioned whether the estimate was overly optimistic, given the high fees associated with administrators. Additionally, it was pointed out that the SNIB incurred an almost £20 million loss last year, primarily due to the failure of the deposit return scheme.
Denholm defended the bank’s performance, explaining that newly established investment banks often face financial challenges and volatility in the initial years before realising substantial profits. He emphasised, “We’ve observed similar patterns in other organisations during their early stages, experiencing volatility before realising actual profits. What’s crucial to note is that, in addition to our income, we’ve earned approximately £10.7 million through our investments, bringing us very close to achieving self-sustainability in terms of cost-income ratio.” However, when questioned about the £460 million investment required to generate this income, Denholm conceded that it resulted in a two percent profit.
This turn of events raised concerns among committee members, with Mountain highlighting the relatively low return on investment compared to a standard bank interest rate. The committee’s scrutiny underscored the need for further examination of the SNIB’s investment decisions and financial strategies to ensure a more balanced and sustainable approach in the future.
