Mr. Harald Felzen:

I thank the Chair and members of the committee for their invitation to attend.

As European project manager of the Sparkassen Foundation, I am very happy, together with Irish Rural Link, to outline how Sparkassen in Germany interacts with businesses, the range of services it provides to business clients and the distinctive elements of Sparkassen and commercial banks in Germany in comparison with Ireland.

Today, we will also discuss to what extent a common good oriented and local banking model could shift the dysfunctional Irish banking market, which would mean interest rates being between 2% and 3% higher than in the rest of Europe, towards a higher level of competition, and better services and prices for Irish customers.

Please let me emphasise that, based on our public service mission, a possible Irish Sparkassen model would not only have a banking role but a role to play in society. In accordance with this mission, the success of a Sparkassen model in Ireland must be measured by its local social, cultural and common good impact, which goes far beyond the basic expectation of sound business management.

To avoid repetition, I will not go into too much detail about the general Sparkassen principle and will highlight the core elements of the Sparkassen lending principles, as requested. Due to the time restriction I will focus on the salient points of our proposal that will contribute to the economic development of regions.

As one can see from looking at the chart shown on page 2 of my presentation, Sparkassen has a long-term commitment to the real economy and prevents credit crunches, which has proved particularly true in times of crisis. The graph shows that Sparkassen increased its volume of new loans to enterprise every year from 2009 to 2015, inclusive, thus enabling the German economy to recover quickly.

The chart on page 3 is an excellent example of the counter cyclical impact of Sparkassen on the indigenous German economy. The Sparkassen Finance Group has held a leading position in the German market for key business segments for many years. For instance, the group is further expanding and strengthening its position as the leading provider of finance to German SMEs. As many as three out of four enterprises in Germany are customers of the Sparkassen group. This important role in the German economy is particularly striking when one looks at the segment of loans extended to craftsmen and tradesmen, as shown on the chart.

Decisions on business loans and risk assessments are taken locally rather than at distant corporate headquarters. As their business area is limited to a clearly defined local territory, Sparkassen are encouraged to foster prosperity in that same region. Let me clarify this in an exemplary way. Normally, Sparkassen divide their business clients based on criteria such as turnover or liabilities. Other segments also exist such as farmers, doctors or special trained staff in Germany. The Sparkassen model represents a relationship-based banking model. Our advisers are the main point of contact for commercial and private banking needs. Our expert advisers provide professional support in both areas. As members can see on page 5 of my presentation, it states: "With the Sparkassen financing concepts, we systematically cover all levels of the financial hierarchy of needs." We discuss the ideas of our customers in depth and examine each of their needs separately because we want to offer them a wide range of customised conventional financing solutions that fulfil their needs.

Sparkassen in Germany accompany their corporate customers throughout the entire life cycle of their business and through the stages of set-up, growth, maturity, consolidation and succession. Unforeseen developments, if any, must be identified as early as possible in order to allow greater options to take action. The Sparkassen has a vital interest in keeping their business customers alive. One can see on the next graph that once a problem is identified Sparkassen can pursue various courses of action. Supporting our customers is always our first choice, which is quite evident because normally 50% of a company's staff are retail clients of Sparkassen with their mortgages, etc.

We have specially trained advisers, according to the Sparkassen Finance Group's concepts. We have the capacity to deliver even more intensive customer support. We also provide venture capital in the region because a person or group who wants to start a business can present a detailed plan to the Sparkassen. As a result of our commitment to the regional economy the Sparkassen are the real financers of venture capital projects in our region.

The Sparkassen lending activities feature certain principles that limit risks. Sometimes we are between the conflicting priorities of prudent loan policy and common good orientation. Holding as much as 75% of the market share is clear evidence of our commitment to small and medium-sized enterprises.

Working with the initial data, Sparkassen calculates customer interest over several stages, adjusting the risk accordingly. For example, it is 1% with regard to a business loan of €200,000 with maturity at five years and very good creditworthiness while good creditworthiness is about 1.5% and medium creditworthiness is about 2%. Our rating procedures are influenced by four factors that are weighted differently. They are quantitative factors, qualitative factors, warning signs and a joint liabilities scheme. What is important for the committee's understanding is that every loan decision is made by a bank adviser, not by a rating system. That is part of our relationship banking model. Very important in terms of reducing operational costs is the fact that ongoing workflow support by OSP-Kredit ensures that essentially all stages involved in a loan transaction are processed without any redundancy or media breaks.

To conclude, members of the committee can see that customer segmentation, graduated levels of support, decentralised business locations, our holistic approach and the risk-mitigating lending principles are some successful elements of the Sparkassen model. Distinctive elements relating to the Irish market are the focus on the regional economy, balancing growth with common good orientation, the added value for regional development, the fact that we are the pillar of the indigenous economy in Germany and the fact that the legal form of Sparkassen prevents privatisation, which is a crucial point in discussions about the Sparkassen model in this country. In fact, access to finance for SMEs in Germany would be inconceivable without Sparkassen. Sparkassen has been the most important source of finance for SMEs for many years.

Nevertheless, Sparkassen is fully exposed to market forces. It operates according to commercial principles and its survival depends on its intrinsic capacity to generate adequate profits to fund its business operations. However, in order to maintain consistent services for its clients, Sparkassen does not strive for short-term profit maximisation as this may produce high risks in the long term. Sparkassen is a local player with an in-depth knowledge of its customers based on its relationship-orientated, personalised advisory approach. Sparkassen shows a long-term commitment to the real economy preventing credit crunches. This is the reason we are deeply convinced that a Sparkassen model for Ireland could improve the banking landscape in terms of costs, services and, fundamentally, social responsibility. I extend an invitation to the committee to visit Germany to get an insight into the real Sparkassen world.