Mr. John Trethowan:

I will start with the issue of an oligopoly in the market.

The decision by Ulster Bank to remain, which decision was reflected in the report, was welcome. Had it not chosen to do so we would have had only two banks supplying the market. PTSB will enter the market, but as it is coming from a low base, it will take a while for it to establish a market share. Ulster Bank is different in that it already has a fair chunk of the market. The two dominant Irish banks, probably, command, at least, 80% of the market at this time.

Policy wise, the Government has set up the Strategic Banking Corporation of Ireland and the venture capital arm Ireland Strategic Investment Fund, ISIF. We deal mostly with the Strategic Banking Corporation of Ireland. The Deputy is correct that it provides cheap funding via the banks and that the loans that are SBCI-funded remain on the banks' balance sheets, such that they are involved in the credit decision and carry the risk if something goes wrong. The Strategic Banking Corporation of Ireland has only been operational for over a year. Its first offering was cheaper funding, which funding is channelled from the European Union to the Irish banks. It now proposes to provide that funding through other providers also. In this regard, I know that Mr. Nick Ashmore is in discussions with lenders outside of the two main Irish banks, but they will need to be given time to become established and get moving. There will be other SBCI offerings, as well as funding, with a start already having been made.

The Deputy asked about the reason the credit guarantee scheme "mark one", as I call it, failed. It did not fail completely because we had used it a few times to help to get deals across the line with the banks. There were some issues around what could be covered. For example, re-financing was not covered under the initial scheme. There was an issue for the banks in how the risk was divided up, an issue which was quite complex, but it has been dealt with. It is hoped the revisions provided for in the follow-on scheme will make it less risky for the banks to provide lending through it. It is also hoped this matter will progress through the Houses reasonably soon in order that we can get it in place quickly because we will need it when re-financing really gets going on hedge funds also.

On the settlement of debt, while blocks of debt have been sold off by all of the banks, there have been many personal debt settlements during the years. Bank of Scotland Ireland, through Certus, has been settling debts with people and has even done deals which have involved discounts. Bank of Ireland and Allied Irish Banks have also been dealing with debt settlements. It peaked in 2014 when the majority of debts in AIB, for instance, were settled, but there remains a tail lag of cases to be processed. What is key in this regard is that the bank made the first and final offer and it was only when that offer was not accepted, that difficulties arose.

On block sales, they were strategic sales made by the banks to correct their capital ratios. The banks needed to unload debts from their balance sheets and I do not think they could have done this by providing for personal debt settlements only. They had to do something to correct the ratios.

The Deputy also asked about construction. In 2012, in terms of the business of the Credit Review Office, we were focused on trying to ensure as many people as possible survived. We dealt with many cases that were construction-related but which related in the main to subcontractors rather than contractors. Many subcontractors had one or two big debtors on their balance sheets and when the debtors went bust, the subcontractors were left high and dry and there was not much that could have been done to help them. We saw many good businesses wiped out, although we did try to get some forbearance and leeway for them.

It is very difficult for subcontractors to recover when they have lost 50%, 60% or 70% of their debtor book, especially when they have men who need to be paid on a Friday.

The banks are now starting to look at financing building developments and matters of that nature but they are not doing the huge ones they would have done in 2007 or 2008. People have been burnt badly. It is now done on a more phased basis. A number of units will be financed and sold. The proceeds will start to flow and the next phase gets financed as well. That is the sort of model we are starting to see come through in the appeals we see.

The Deputy is right about balance sheet contracting. Based on the surveys carried on the demand side, demand is still subdued. The banks have been completing their restructuring, which included writing down debt either through sales to these hedge fund-type operators or to individuals. Between the amount of repayments being made by businesses just deleveraging themselves - those that can afford to do so - and the debt that is being written down or sold off, it is far exceeding the demand for new credit.

As part of what we do when tracking the numbers of the two banks every month, we receive a funds-flow statement from them at the end of each calendar quarter and this shows where they started the year and quarter, how much interest they have been paid, how much lending they have put out and how much has been written off or repaid. That covers the time from the start of the year to the end of the particular accounting period. So we can see what is happening and how it is being deleveraged on the way through. Until lending demand improves above 30%, the balance will always be tipped to contraction.