(Corrects figure on German defence and infrastructure spending plan in paragraph 8 to 500 billion from 500 million)
LONDON/FRANKFURT (Reuters) -The EU's lending arm, the European Investment Bank, has tripled a scheme to help fund the bloc's defence industry to 3 billion euros ($3.43 billion) and signed a deal with Germany's Deutsche Bank to start funnelling the money to the bloc's military firms.
The EIB announced on Wednesday it would provide a 500 million-euro loan to the German lender which will then onlend the money to small and medium-sized firms throughout the EU's security and defence supply chain.
It is the first time the EIB has provided so-called intermediated financing for the defence sector and is expected to announce similar deals with banks in France and other parts of the bloc in the coming weeks.
The triple-A rated EIB is prohibited from investing directly in weapons but it has started investing more broadly in the defence sector over the last year as part of Europe's efforts to build up its security capabilities.
The bank's President Nadia Calviño announced the plan at a summit in Brussels saying that strengthening Europe's security and defence was now "central" to the bank's mission and would help address "the urgent need for investment" in the sector.
The threefold increase in the EIB's lending, which was initially approved in December, reflected "exceptionally strong" interest by commercial banks across Europe to be involved in the defence ramp up efforts, the EIB added in a statement.
It comes with European nations under heavy pressure from U.S. President Donald Trump to boost their defence spending. Europe's NATO members also feel less able to rely on the U.S. security guarantee than in the past as they face off against a more aggressive Russia.
Germany laid out its own 500 billion-euro defence and infrastructure spending drive earlier in the year and swathes of other nations are signalling increased plans too.
Share prices of major European weapons firms have soared in response, but many smaller firms remain constrained by a lack of financing.
Deutsche Bank's Chief Executive Christian Sewing said it was affecting hundreds of smaller firms that supply crucial parts. The bank has formed an internal group spanning a range of departments to work on defence lending.
"SMEs (small and medium sized enterprises) are key links in the industry's supply chain," Sewing posted on LinkedIn.
($1 = 0.8746 euros)
(Reporting by Marc Jones; Editing by Sharon Singleton)
By Marc Jones and Tom Sims