MSPs have been warned that the Scottish National Investment Bank will not become financially self-sustainable for at least three years due to the longer-term investments meaning returns are "slower at coming through".

The chairman of the bank also told MSPs that work is underway for the public body to become fully regulated – warning that without the move three “missions” set by SNP ministers will not be achieved.

The bank was launched in November last year and handed £2 billion of public money from the Scottish Government over a 10-year period to invest.

It has been set three missions by the Scottish Government – to “support the transition to net zero” and “to build communities and promote equalities", alongside being able “to harness innovation in a way that enables our people to flourish”.

But Willie Watt, the chairman of the bank, told Holyrood’s Net Zero Committee that it will not be able to fulfill its remit without becoming a fully regulated bank with the Financial Conduct Authority (FCA) – with steps now being taken to ensure that happens.

Mr Watt told MSPs that seven projects have received funding totalling £120 million so far, stressing that “we’ve been active since our launch”.

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He said: “In the first quarter of this financial year, we have made invest commitments of £62 million, of which £50 million has been drawn.

“We are on track to invest the commitment of £200 million that was in the Scottish budget for this year.”

Mr Watt added: “Our investments are helping to deliver a range of innovative and exciting projects across tidal energy innovation, net zero insulation for homes, forestry and electric vehicle charging.

“We also have a pipeline of investments we are working on – some of which will certainly contribute to our net zero mission.”

MSPs were also told that it would take several years before the bank is financially self-sustainable and not reliant on public finance to keep it running.

Conservative net zero spokesperson, Liam Kerr, pressed chief executive of the bank, Eilidh Mactaggart, over when the body hopes to no longer be reliant on public money after research estimated set-up and operating costs between 2018 and 2023 at £50 million.

Ms Mactaggart told MSPs that financial self-sustainability was “something that we are very focused on achieving”.

She added: “We expect to achieve it in the medium term. The important thing about financial self-sustainability is the fluctuating returns on investments.”

As an example, the chief executive said that the bank may hit self-sustainability in year four or year five, but will want to “make sure we can sustain it” before cutting ties with Scottish Government funding.

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She added that operating costs for this year are “estimated to be around £15m with additional income that the bank will make to contribute to that cost as well”.

She said: “We won’t full cover that cost this year or in the next couple of years, we do not expect to. It very much depends on the build of the portfolio.

“Our patient capital nature of the investments we make means the returns tend to be backended and slower at coming through.”

Mr Kerr asked the officials over the bank not being currently authorised or regulated by the Prudential Regulatory Authority or the Financial Conduct Authority (FCA).

He added: “How is it still a bank given that it’s not so regulated?

“Do you have any plans to formally become a bank and become so regulated?”

Mr Watt told the committee that “the advice from the bank’s own advisers and the government’s advisers” was that the body would start operating without being regulated.

He said: “That is a position that the Financial Conduct Authority is entirely comfortable with.”

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Mr Watt added: “Do we intend to become regulated by the FCA – the answer to that is yes. We think that that is important to the ongoing development of our missions.

“£2 billion over 10 years is a significant amount of public finds and we are very, very mindful of the stewardship of that public capital.”

But he warned “it is not enough to achieve the objectives that we have to meet our missions”.

HeraldScotland: Willie Watt, chairman of the Scottish National Investment BankWillie Watt, chairman of the Scottish National Investment Bank

Mr Watt added: “ To do that, we need to be able to manage third party capital. And to be able to manage third party capital, we believe we need to be FCA regulated because that will give people confidence to give us their capital to manage.

“Eilidh and her team are leading a project with the FCA which is happening now.”

Mr Watt highlighted estimates by the Scottish Government’s statutory adviser, the Climate Change Committee, that “Scotland will need to invest £5 billion a year over the next 10 to 20 years” to meet its strict net zero targets.

He said: “That has to come from the private sector and the private sector will only invest if it makes positive returns.

“The alignment of making good investments that make sense for climate change and to making commercial returns is a really important combination. It’s a combination that we want to foster and encourage.”