Mr. Ken Burke:

In our submission, we spoke of AIB's experience in managing other parts of the agri sector through the downturn. We have significant market share and exposure to the pig sector. It is a factor of the pig business that there are good years and bad. We help pig farmers plan for the bad years. They have sinking funds and mechanisms to put cash away to cover themselves during those periods. As far back as 2013, we were signalling the volatility that we felt was going to hit the dairy sector and that volatility was going to be the new norm. On whether this is time-bound or relative to our support for the sector, it is not. We see it as a new norm and one with which farmers will have to get comfortable. They will have to find ways of managing their businesses, including hedging of commodities and financial products and managing and measuring their own capital investments through the cycle. We see that this will certainly be a H1 event next year and we are forecasting that in H2 there might be some easing of the situation. If that were not to happen, it is not something that would faze us. We speak in our submission of a through-the-cycles price of 30 cents per litre. We are happy with the business we have written and the capacity of that business to weather any particular continuation of this.

I will give the committee some figures that might help. I apologise that the figures are not on the screen, but I know members have the figures in front of them. A graph shows dairy farmers' current account balances. The first thing I would say is that overdraft utilisation is at a low level. The key point I want to bring out is that for every euro that is drawn on dairy farmers' overdrafts in AIB, there is a multiple of four times cover in terms of cash held and surplus cash in other current accounts or deposit accounts. This gives us real comfort. Average overdraft utilisation was at 24% during October 2015 and credit balances were up 32% year on year. This gives us good comfort in terms of management of working capital.

If one looks at the outstanding loan balances in the agriculture market reported into the Central Bank, this peaked in quarter 1 of 2009 at €5.5 billion. In quarter 2 of 2015, the Central Bank was reporting that it was down to €3.3 billion, which is 38% below its peak. When we take those two figures together, we are not being in any way complacent around this, but we are saying there is a level of headroom in terms of managing those cashflows before one gets really acute pressure or pinch points.

The vast majority of our farmers are on fixed repayments. They may be on a variable interest rate but their payments are fixed for the duration of the loan. This gives them comfort in terms of managing their cashflow. We are proactively engaging and anticipating rather than waiting for a pressure point that might come in quarter 1 of next year. We are asking our farmer customers to complete a cashflow forecast for 2016 and to anticipate where the pressure point will come and how we need to deal with it. I will deal with one other point. A principle of AIB's practice in giving that support is that we do not re-price facilities. If we are giving a period of interest-only payments or a payment holiday, we are not re-pricing those facilities. They are offered at the existing price.

"Better before bigger" was mentioned. That is our premise. The last time we were here we mentioned the income differential of €60,000 per annum between the average top-performing dairy farmer and the bottom 10%, which is significant. That has been our starting point.

I am not sure if the committee would like me to deal with the issue now, but in terms of our support, pricing and interest rates, there has been talk about the European Investment Bank. AIB had three separate rounds of EIB funding. We replaced the last round of EIB funding. Our intent was to provide the lowest possible credit we could to our farmer customers by accessing European markets. We had that third round of EIB funding. When the Government sponsored and supported the Strategic Bank Corporation of Ireland, we retired that third round of funding and partnered with the SBCI to bring a €200 million fund to market. Agri is taking a significant slice of that funding.