Mr. Bernard Byrne:

On behalf of AIB Group I thank the committee for inviting us to attend the meeting. We welcome the opportunity to present the bank's perspective and our plans on the vital issue of lending to the SME sector and fuelling the regrowth of the Irish economy. This forum provides a unique and very valuable means of communicating the bank's strategy to the political and wider environment and it allows the bank to absorb members' ideas and recommendations in terms of shaping bank policies.
I am very glad to be able to report that we are making progress on the difficult road back to normalised banking activity. The major restructuring that AIB has undertaken to become a fit-for-purpose bank, capable of normal lending, dealing with loan arrears and customers in difficulty, capital adequacy and returning to profitability, is yielding solid results. AIB expects to return to profitability during this year, 2014, and we believe we are adequately capitalised to meet the demands of an improving economy.
A number of perceptions persist around the bank's lending policy and I wish to briefly address these. To suggest that AIB is refusing credit to viable businesses is wrong and it fundamentally misunderstands the situation. With SMEs accounting for the vast majority of enterprises in Ireland, it makes absolutely no business sense not to facilitate their financing. The bank's ability to grow and make a return to the Irish taxpayer depends on its willingness and capacity to lend prudently. To do otherwise would be to remain static and is counter-productive on all fronts. The financial health of the SME sector and that of the indigenous banking sector are inextricably bound together.
Second, it is important to point out the mistake in making a distinction between new lending and refinancing as though the latter was somehow less critical to the economy. Protecting existing jobs is as important as laying the foundations for new employment and our figures demonstrate precisely the scale of refinancing required for SME customers in financial distress. The scale of SME lending in Ireland has to be viewed in context. From the highs of the boom years, demand and lending have fallen dramatically but all indicators are that 2014 will mark a turning point for SMEs as consumer sentiment improves to a point not seen since the economic crisis, coupled with a year-on-year fall in unemployment. AIB exceeded the Government's €4 billion lending target in 2013 with €4.3 billion sanctioned to 32,000 SME customers in new and refinanced facilities. The approval rate for lending applications was 92% for the year.
While factors such as consumer sentiment, employment levels and disposable income ultimately dictate the level of demand for credit, AIB is adopting a proactive sectoral approach through streamlined SME lending structures, targeted funds and detailed engagement with SME customers across all key sectors of the economy. The bank is building new sectoral teams with specific skills and expertise to complement our traditional core areas, such as agriculture. It is establishing dedicated personnel to originate and nurture new business opportunities in areas such as technology media and telecoms, energy, life sciences, exports, entrepreneurship, hospitality, tourism and property. We are also making funds available to stimulate and support many of these sectors, with a €1 billion in funds committed to the energy sector by 2017, a €350 million new residential homes fund and our more recent announcement of a €500 million agri-fund. AlB's volume of new money approvals rose by 22% last year and we are seeing this positive trend continuing into the first quarter of 2014. Increased levels of new money-sanctioned activity grew across a range of sectors, including wholesale-retail, agriculture and transport.
AIB has established itself as the leading Irish bank for SME start-ups, supporting approximately 50,000 job in the past three years. The bank has the No. 1 market share for new start-ups seeking banking facilities and has launched a number of initiatives including a business start-up academy in partnership with The Irish Times. The level of indebtedness in the Irish economy, relative to EU norms, is very high and this affects demand. Almost all SME borrowers are seeking to pay down existing debt rather taking on new loans. Repayment of loans continues to outstrip new lending activity.
We notice that the issue of SME arrears and distress appears to be the subject of less national debate than the question of mortgage arrears, even though its resolution is absolutely critical in terms of Ireland's economic activity. SME debt makes up the greater part of the bank's troubled loan book but we have made very significant progress with much higher rates of customer engagement among SMEs than among mortgage customers. We are on course to complete the substantial majority of SME restructures this year. As a pillar bank, AlB's strategy is to support viable businesses and protect jobs where possible and SMEs in difficulty are identified as the top priority. Criticised and impaired SME loans are typically managed with the banks financial solutions group and have a dedicated relationship manager to help resolve these issues.
Approximately 9,000 SME customers, employing a total of almost 40,000 people and €15 billion of loans, are managed within AIB financial solutions group, FSG. Proactive and targeted solutions are necessary to deal with these issues and AIB has set itself aggressive targets to agree long-term fundamental restructuring with its SME customers in order to restore them to unimpaired status and allow them and the bank to move onto a solid and certain arrangement.
A recovery in the SME sector is crucial to the Irish economy and to the banking sector. AlB's financial planning is concentrated on achieving total lending approvals - mortgages, personal and business - of between €7 billion and €10 billion each year up to 2017. On behalf of AIB, I want to use this opportunity to express again our thanks to the Irish taxpayers for their continued support. Our endeavours are focused on re-establishing AIB as a profitable, investable bank to deliver on the State's investment over time. We continue to invest and work towards the development of a customer-centric bank, meeting the challenges of the recovery and providing credit and all other banking services to Irish businesses that are the backbone of our economy. We welcome questions from members.