Mr. John Moran:

I will give some general statements and will call on Mr. Hogan who is closer to the market side to come in. Taking it in inverse order and dealing with the SME sector, I referred earlier to the fact that in the earlier part of the crisis, much of our focus, appropriately so, was on trying to get lending to SMEs. The target for that lending obviously included viable businesses that should have been able to draw down money to grow. Otherwise the economy simply would not be able to conduct itself.

The analysis or policy tools used to try to drive lending in the banks included the lending targets and the Credit Review Office to adjudicate as a third-party on what was deemed a fair or unfair decision by the banks in respect of lending. Certainly, it has taken longer than we might have wished for the population of small and medium-sized enterprises to become more comfortable using the Credit Review Office as an arbitrator in that respect but there has been some success where that has happened.

Bearing in mind that much of this effort started in 2011, one thing we observed along the way was that several SMEs which up to that point had been grouped as one category were in reality in a very different category, in that they were SMEs with unsustainable debt or with significant debt that may have had nothing to do with the underlying business. The two categories had to be disaggregated. In many cases the balance sheets of either the SME or the owners of the SME had been destroyed by property businesses attached to them which had failed.

The speech to which I referred earlier made at the Irish Banking Federation in 2012 was an exhortation by us to the banks to get moving on the resolution of SME lending and to deal with the problems we have referred to, in particular the need for those SMEs with too much debt to have a resolution. At the time, more of the focus was on the mortgage arrears issue, which in many ways reflects the same thing but the situation was capable of being addressed.

My understanding of the latest statistics is that Bank of Ireland claims to have resolved over 90% of what it considers to be the troubled loans in terms of offering SMEs real solutions. I gather Allied Irish Banks is probably at 65% or 68% at the moment and working towards the completion of that by the end of this year. For Permanent TSB this is not necessarily an issue.

Like with the mortgage arrears, the difficulty experienced in resolving the problem, particularly in 2011 and early 2012, was that the banks were simply unable to deal with these issues. They were not ready, they did not have operational systems and they did not necessarily have the right mindset to work through the resolution of the mortgages. However, since then and under pressure from the regulator, they have in fact been moving considerably on the SME side.

There is another point on the SME side. To the extent that we went through this process, there was initially a focus on the banking sector and what we would do to get more lending out of the banks. Then we evolved with the policy decisions to an understanding that there was a need for other sources of financing for businesses in Ireland, in particular for rebuilding balance sheets, because many companies had gone through years when they had depleted the reserves that one might typically see associated with a firm seeking a bank loan. We needed to be able to find mechanisms to put equity into those balance sheets before they could get borrowing from other banks. That has been the focus and there is almost €1 billion of State money put aside in the National Pensions Reserve Fund for a turnaround, growth and credit fund for businesses. We are trying to deal with the bank situation and the Credit Review Office for the smaller companies but we have the Microfinance Ireland fund and credit guarantee fund and so on as well.