Dr. Eoin Magennis:

The Deputy asked about Microfinance Ireland, the margin over the base rate and the impact that might be having. The chief executive of Microfinance Ireland appeared before the committee to discuss the first year of operation and there was quite a slow uptake at that stage. There appears to be some debate about what the impact of a slightly higher margin over the base rate might be. It is a difficult balancing act between having a slightly higher risk profile with some of the businesses and the margin over it, but that appears to be one factor in terms of the low uptake. However, I suspect, given what we found in the report, that a bigger factor is just getting the information out through intermediaries and others that the scheme or initiative is now available. That is a big issue. The Department of Finance and the State bodies group are undertaking a big communications strategy over the next couple of months in terms of rolling out what initiatives are available to SMEs, with road shows and a web-enabled database of the schemes that are available for companies.

With regard to the low levels of Northern Ireland credit, it is 4:1. At one level, if one looks at the relative population North and South, that would appear to be out of line. Another way of looking at it, which perhaps brings it back more into line, is the equivalence of the GDP figures to GVA in Northern Ireland. With the size of the two economies, it is not exactly 4:1, but it is coming close to that. That might mean that it is not as far out of whack as it appears. However, that seems to be what it is. It is hard to know until one gets more figures and more trend data on the Northern Ireland lending figures to see what the true situation is.

We looked at the lending institutions in so far as one key factor is the question of the number of banks or other lenders or companies operating within the market. I doubt that anybody here would consider having two pillar banks and nothing else as being a good or optimal situation. Under the Action Plan for Jobs there are a number of actions with regard to increasing the number of lenders and lending institutions coming into the market. That would certainly be welcomed. It is not just banks. There is also the example of the small area of invoice discounting. We have seen players in the market coming into that area in the last couple of years. They had been there but their profile has been raised in recent years. Having more actors in the market and in the ecosystem generally is definitely a good thing.

On the issue of bank funding and our comment that it is disproportionate, according to the EU-wide survey that is carried out and on which EUROSTAT reports, the EU-27 average is approximately 84% or 85%.

That is approximately 10% less than what the reliance on bank funding is North and South.

On the right-sizing of debt, this is a topical issue on which there is much discussion. For a number of years forbearance seemed to be the way to go in terms of extending the payment terms, giving payment holidays and so on. It is probably coming to that stage now. The banks have said they have a protocol with the Central Bank to look at the loans on their book, and they are working their way through that. We are using the figure that they have worked their way through 90% of their small and medium enterprise, SME, loan book. What we are not hearing, and what remains to be seen, is the action being taken having looked through the loan book. Will individual banks have a strategy as to how they will deal with people who are having difficulties paying those loans and whether some of the loans are viable? Mr. Gough mentioned that Danske Bank in the North has floated the idea of looking at property debt in a slightly different way and putting some sort of mezzanine loan fund in place with debt for equity swaps and other types of longer payment terms, perhaps back-loading as opposed to front-loading payments and so on, which would introduce some flexibility into the situation. What everybody would like to see is, if there is a property debt, that it is not pulling down a viable business. It is not that the debt would be set aside or wiped out but to ensure in some sense that it does not pull down the business because the banks are enabling a viable business to continue trading.

On the numbers of loan refusals, different figures have been put about on whether 84% or 55% of applications have been approved. It is very difficult to know what that is, and it depends on how the companies are surveyed. Whether it is 84% or 55%, it must be borne in mind that we are still talking about tens of thousands of firms. Whether it is only 15% or 45% that are being refused, that is still a large number of firms every year. The banks talk about 120,000 applications made to them for new or revised credit every year. Therefore, in absolute terms, we are talking about large numbers of firms, which probably explains the reason firms are saying they are being refused credit or business associations are reflecting those views.

On the financial skills and information gap, Mr. Gough has covered that. One of the initiatives that has started to be rolled out this year in the South is the management works financial capability initiative, on which courses are running currently. I understand they are trying to deal with capabilities of 900 to 1,000 firms over the next 12 months; that was in the budget last year. A number of financial service providers, including Mazars, are working on mentoring companies in terms of getting their business and financial planning right if they are approaching lending. Some of that investor readiness type work is beginning to happen and I would be very surprised if we did not have a queue for that type of service or initiative if, as I said earlier, the information is got out in the right way and businesses learn from that.