Richard Bruton (Dublin North Central, Fine Gael)
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Undoubtedly, we have had to restructure the scheme to try to make it more attractive to the banks. As the Deputy notes, a longer period is provided for now. It remains - this was the important thing that came out of the study - an effective tool. We need to make it more effective and more usable. I think the Deputy is right to say banking inertia exists. There is no doubt about that; one just has to look at the new lending to SMEs. It has been pretty much static at €2 billion for the last number of years. No sign of significant recovery increase has been shown. Part of that - and the banks are correct in saying this - is due to a retreat from borrowing. SMEs are not as interested in borrowing as they were. The one positive piece is the Red C poll of SMEs shows that the refusal rates are coming down pretty significantly. They have come down from 30% to 19%. There is progress on the refusal rate. I continue to say to SMEs - and encourage members to say it to them also - not to take no for an answer. Some 70% of those who question the decisions get the decisions reversed. This occurs in the case of one third when they question the decision internally with the bank and another 56% of those who go to the next step and have the decision reviewed by the Credit Review Office, CRO. Some 70% get it overturned but it is still a small proportion of those refusals.

One of the things we are doing this year is restructuring the loan application so that there will be a pre-ticking of consent to have the decision reviewed. That will allow the CRO to look at refusal rates where decisions were not appealed. This would allow us to examine a sample to see if good bankable projects are being turned down. There are continuing problems but we are hoping to get to grips with those. To be fair to the banks, they have a significant SME restructuring problem. The capital requirements for lending to SMEs under Basel III have gone up. The banks are in a mode that is risk averse. That is one of the reasons we have sought to put more non-bank sources of finance into the marketplace.

I am not fully content that the banks have the requisite skills. I certainly would not agree they have but I am satisfied they are taking considerable strides to put appropriate resources in place . They have recruited new people and Enterprise Ireland works closely with them in order to get them sector-familiar. They attend various events run by Enterprise Ireland, for example the exporting event held in the RDS recently. They are more engaged with SMEs and they definitely have recognised that SMEs are their future. I think there is a conversion of belief.

Mr. Hennessy has reminded me that there was an allocation for training in last year's budget for SMEs because, genuinely, part of the problem discovered was that the quality of loan applications was often not up to standard. We found the same in the case of micro-finance. The discipline expected forced people who sometimes were able to go back to the banks and have a loan approved using the new approach. We must work on this problem with both sides of the marketplace.

The strategic bank corporation is an ICC-type model. The State puts money in through the strategic investment fund; there is the German KfW money and also EIB money. This will be a new source that I think will be lending within the next quarter.

The legislation is open to the participation of credit unions, but they must obviously obtain approval from their regulator to be lenders to SMEs. Someone who lends to SMEs can apply to be approved by my Department. However, the first hurdle for credit unions is to make sure their regulator is happy, but we have made legal provision to ensure they can be participants.

The interest rate is the market rate plus a premium. The Deputy was correct, therefore, to say it was higher. Generally, credit costs are higher here than elsewhere in the European Union, but the rate still reflects the banks' credit ratings and their ability to raise funds in the markets and so on. They are in a more pressurised position, but, happily, they are showing some signs of shaking from it and being able to borrow more competitively.