Mr. Brendan O'Connor:

At our last appearance before the committee we spoke about the critical importance of resolving the issue of SMEs in financial difficulty. We have approximately 9,000 SME customers, some of whom have multiple accounts, with €15 billion of debt attached. That debt was taken on at a different time and often in respect of non-core assets. Most typically, borrowers in Ireland are not legal entities but instead borrow in their own name. One frequently finds that assets are entangled - for example, buy-to-let properties mixed in with commercial real estate, apart from the SME itself. It is our strategy to disentangle what I would call the non-core debt over time.

We have a structure in place, which has been rolled out across the market and has quite a bit of traction, whereby we determine the level of sustainable debt a company can maintain. "Sustainable" does not refer to a maximum; we do not talk about maximising our return on debt but rather optimising the return. It is about finding the level of debt a company can sustain while continuing to run the business. An hotel, for example, needs working capital, a pub might want to install a new kitchen, and so on. We determine the level of debt-collect the SME can maintain while sustaining itself. The first step in this regard is determining whether the SME itself is viable. In some cases, for reasons unrelated to debt - changed market conditions, for instance - the business might simply no longer be viable. Once we have established viability, we put a structure in place for those customers who need it whereby the bank will compromise on the amount of debt outstanding. In other words, wet will right-size the balance sheet of the SME.

In the past 12 months alone, we have approved more than €2 billion worth of compromise. Such arrangements are subject to performance, so the SME needs to perform on the sustainable portion. To the extent that it does, it knows beforehand there will be a compromise on the unsustainable debt. Practically speaking, our approach is no different from what we are doing on mortgages. Where we have assessed that a debt cannot be repaid or never can be repaid, we are prepared to compromise on that debt.