Dr. Anne Finnegan:

My colleagues and I are pleased to have this opportunity to give the Oireachtas and the Irish public an update on AIB's ongoing support for the agriculture sector, in particular our participation in the Strategic Banking Corporation of Ireland agriculture cashflow support loan scheme. I am AIB's head of agriculture. I am joined by Mr. Ken Burke, who is AIB's head of group credit products, and Ms Catherine Moroney, who is AIB's head of business banking.

I refer the members of the joint committee to the slides that were circulated in advance of this meeting. As they are aware, 2016 was a challenging year on a number of fronts for Irish agriculture. Most sectors experienced a price-related downturn, while others fared better. The UK's decision to leave the EU and the rise of protectionism across key global markets has now signalled a new era for trade that will undoubtedly have an impact on agricultural commodities. AIB is acutely aware of the ongoing challenges facing the agrifood sector. We are particularly aware of the potentially significant impact of Brexit on the sector and the anxiety that is causing for processors, food manufacturers and farmers. It is generally accepted that its greatest impact will be on the meat sectors, most especially the beef sector, cheddar manufacturers and consumer food businesses, including SME food businesses. While our treasury teams continue to support the sector at all levels in the bank - corporate, business centre, branch and direct - we are working with customers to understand the implications for their businesses and to learn how best we can support them. To that end, we have just appointed 21 Brexit advisers, who will support our customers and our frontline staff in navigating the challenges and opportunities posed by Brexit.

As price takers, farmers have no influence on external events that may have an impact on the prices they receive. Their only option is to look inside the farm gate and to seek to make their enterprises as efficient and resilient as possible. Grass utilisation is of key importance in this regard in the livestock sector. AIB has committed a substantial investment over four years in the Teagasc-led Grass10 initiative, which seeks to increase grass utilisation and cost efficiency on livestock farms.

AIB is committed to playing its part in the concerted national effort to minimise the negative impact of the UK's decision.

AIB has a long and enduring association with the Irish agrifood sector. The bank is now the main lender to Irish farmers and AIB accounts for more than 40% of total Irish farm lending. We are all aware of how critical agriculture is to the economy, jobs, individuals, families, communities and broader Irish society. It is a core part of our SME strategy, which was cemented in the 1970s with the establishment of an agri-advisory team. Today, this experienced 16-strong agri-sector team, all of whom are agricultural science graduates, is regionally based. The main role of the team is to provide objective farm financial and technical analysis to the bank in individual farming cases, in addition to supporting bank staff.

In general, aggregate farm debt in Ireland continues to decline from a peak in 2009. However, we have seen strong demand for new lending in recent years as farmers invest in their enterprises. The dairy sector continues to be a key driver of on-farm investment and, in recent years, the beef sector has also invested significantly. Our analysis of market predictions from the main forecasting agencies indicates that the medium-term outlook for global agricultural commodities remains positive. On this basis, AIB maintains a good long-term outlook for agriculture, while recognising that challenges in each of the production areas exist. In fact, agriculture has experienced comparatively lower levels of credit difficulties than other SME sectors. AIB is very happy to support ongoing investment in this industry.

Despite the challenging price environment experienced by most farmers in 2016, AIB's new lending to farmers increased marginally on 2015 levels. There was no significant increased demand for working capital in 2016. Overdraft utilisation levels at the end of March 2017 were on par with the same period in 2016 and 2015. Notwithstanding the buoyant cash flow position of the sector last year, AIB undertook the following supports specifically in regard to cash flow: proactive contact with dairy and pig farmers; proactive contact with the main dairy processors in regard to farmer support; agri-adviser presentations on cash flow planning at over 30 industry seminars; and the publication of customer information on farm cash management.

According to the AIB agri-financial services research of July 2016, undertaken by Ipsos MRBI, almost 40% of farmers have no bank borrowings. In addition, research suggests that four out of ten farmers plan to invest in the next three years. This is higher among dairy and commercial farmers. To support those farmers that do have a requirement for bank funding, AIB has a range of products, bespoke and general SME, to support farmers needs. In November 2015, we launched our second €500 million fund to support on-farm capital investment and working capital.

Farmers use a variety of mechanisms to manage working capital, including bank funding and merchant credit. Depending on the nature of the enterprise and the working capital cycle, AIB has a number of options available, including a business overdraft, seasonal stocking loans, prompt pay and the farmer credit line. A farmer may avail of one or all of these in combination to support his or her working capital.

AIB's farmer credit line is a unique product which seeks to provide a flexible approach to managing farm working capital. For planned seasonal expenses, farmers can draw down funds from a credit line to their current accounts and have flexibility to repay within the year as they have funds available. This product is competitively priced and farmers may currently avail of a typical rate of 3.825% variable. AIB has a range of options to support capital investment on farms. Farmers can avail of our on-farm capital investment loan, which is priced at 5.5% variable, a 1% discount on our standard variable business loan,

Aside from the cash flow support scheme, AIB is the leading lender of SBCI SME funding, the sector having availed of €400 million to date. This was made available at a rate of 4.5% variable, a 2% discount to our standard business variable rate, and can be used to finance most on-farm capital investment. Farmers have been keen to avail of these SBCI funds, accounting for 27% of the total AIB draw downs in 2016 and quarter 1 of 2017. In addition, we also offer asset finance to support investment in machinery and equipment. As with all SME investment the term of the loan is typically linked to the useable life of the asset.

Following the announcement by the Minister for Agriculture, Food and the Marine, Deputy Creed, of the plan to introduce a €150 million agri-cashflow support loan scheme, AIB engaged with the SBCI to participate on the basis of a €60 million loan fund. Given the tight timelines from announcement to expected launch of the fund, we applied significant resources to our participation in the scheme and to developing a product which would enable our customers are avail of this funding is efficiently as possible.

The scheme features and eligibility criteria were set out by the SBCI. The key features of the scheme were a maximum loan amount of €150,000 per farm enterprise, loan terms of a minimum of one year of to a maximum six years, loans that are unsecured, optional interest only repayments provided at the start of loans and an interest rate of 2.95% fixed for the term of the loan.

The SBCI also set out key criteria relating to how loans should be used and who can apply, as well as eligibility criteria. As with all similar schemes in which AIB participated, normal lending terms and conditions applied.

Having had previous experience of administering SME funding from national and European funding agencies, we anticipated some complex elements in this scheme. As such, we supported the launch internally and externally with significant resources to help our staff, customers and their advisers to fully understand the details of the scheme. Following the launch of the scheme, we hosted 30 external briefing sessions across our 19 local markets for stakeholders including accountants, Teagasc advisors, agricultural consultants and farming organisations.

Given that this scheme was first announced in early October 2016, we envisaged significant pent-up demand. AIB’s fund opened on 31 January and closed on 2 March following a strong pipeline of applications. We are currently processing all outstanding applications as full information is received from customers. When all applications are completed, the fund will have been oversubscribed. AIB has taken the decision to accept all applications received by the closing date at the same rate of 2.95% fixed and subject to the same terms and conditions as the SBCI cash flow support loan scheme.

As of last Thursday, 4 May, 62% of our applications have been processed and sanctioned, and the funds are now available or have already been drawn down by customers. The dairy and beef sectors account for the majority of the applications and funds sanctioned. However, all sectors benefited from the scheme. Of those loans that are fully processed, 72% of funds have a term of greater than four years and 23% have a term of 13 months to four years, while 5% have a term of one year.

AIB has been pleased to have the SBCI cashflow support loan as a component of our suite of financial supports for farmers in 2017. We reiterate that farming remains a core business sector for AIB. It has always maintained a through-the-cycle view of the agri sector, recognising that there will be a mix of good and bad years. As a leading bank to the industry, we will continue to play a key supporting role in the development of an efficient and sustainable agriculture industry in Ireland.

On behalf of the bank, I want to again express thanks to the committee for inviting us here today. We very much appreciate the opportunity to discuss this key SME sector and welcome members' questions.