Mary Coughlan (Donegal South West, Fianna Fail)

I wish to share time with the Minister of State at the Department of Foreign Affairs, Deputy Peter Power.

I welcome the opportunity to speak on this most important legislation. Some commentators have described this Bill as perhaps the most important legislation to have come before the House in a generation. There is no doubt that we must get it right, not for our own sake, as legislators, but for the sake of our economy, the enterprises that are the engine of the economy and the workers and families and indeed all citizens whose standard of living is so closely linked to Ireland's economic health.

My focus is on how this Bill contributes to economic recovery in support of enterprise. My colleague, the Minister for Finance, in his address to the House yesterday, set out in detail on behalf of the Government the main provisions of the Bill. I do not propose to repeat what the Minister said but as Tánaiste and Minister for Enterprise, Trade and Employment, I will set out what I see as the key rationale for this Bill and the reasons it must be supported.

Sustaining and developing enterprise and jobs remains at the top of my agenda and that of the Government. That is the starting point for all our efforts. Since 2000, Ireland has been losing ground in terms of international competitiveness. The recent economic contraction has brought real challenges - national income is declining rapidly and unemployment is rising sharply. However, there has been a modest improvement in cost competitiveness. Export-led growth is a key part of any sustainable longer-term strategy to maintain living standards and secure long-term prosperity. This will require a substantial further improvement in our international competitiveness. This will mean bringing our cost base into line with market reality and building our skills base, infrastructure, technology and ability to operate as a smart, open, trading economy in an increasingly complex world. The National Asset Management Agency has a key role to play in this by addressing the reality that unless problem assets on the banks' loan books are dealt with and are seen to be dealt with, banks will be unable to attract resources to resume sensible lending to enterprise.

The people running our small and medium size enterprises need no reminding of the scale of the unprecedented challenges facing the business community. The severity of the international financial crisis and our particular exposure to it is well known. International and domestic demand and investment has suffered. Over the past year, exporting businesses have been particularly badly hit by the fall in the value of sterling against the euro. These are the toughest of times for Irish businesses.

The Government has taken action on a number of fronts to address these issues. It has provided €100 million for an enterprise stabilisation fund, under which Enterprise Ireland may give up to €500,000 to viable companies with robust business models that are facing difficulties as a result of the current economic environment. The Government has also introduced arrangements to reduce the payment period by Government Departments to business from 30 to 15 days. Last month, I announced a €250 million scheme to protect up to 27,400 vulnerable jobs in the productive sector of the economy. The temporary employment subsidy scheme will provide a subsidy of €9,100 per employee over 15 months to qualifying exporting enterprises in the manufacturing and-or internationally traded services sectors.

Another issue, namely, access to and the cost of finance, is critical for Irish businesses, particularly indigenous firms which cannot easily access credit on international financial markets. There are real concerns that the turmoil in global financial markets and exposure of Irish banks to bad loans is affecting Irish firms in terms of their ease of access to finance and its cost. It is essential that viable businesses, particularly small and growing businesses, are not hampered by reduced access to credit. Our businesses need credit to be available in order that they can invest in their people and equipment, source supplies, grow to scale, invest in marketing and promotion as well as to help fund the supply of goods and services that input into their products. They also need credit to be available to their customers in order that they can purchase those products. If we want this period of contraction to be quickly succeeded by an upturn, this is the normality to which we must return. I share the view of the International Monetary Fund that delays in fully relieving the banks of their impaired assets will delay a return to normal functioning.

The issue of access to credit for small and medium enterprises has been raised repeatedly at recent meetings with business representative organisations, such as the Small Firms Association, ISME and Chambers Ireland. The messages emerging from the available data certainly add to the concern. We have seen negative growth in private sector credit in almost all sectors. The volume of new business loans and overdrafts to non-financial corporations is down. Total lending to the small and medium size sector has remained relatively static. Bank reports to the Financial Regulator show that while new business lending is taking place, it is at a lower rate than last year. In terms of the cost of credit, average retail margins for most lines of credit have been above the euro area average.

The Government has taken action in advance of the establishment of NAMA. The banks' recapitalisation package of February last contains a commitment from the recapitalised banks to increase their lending capacity to small and medium size enterprises by 10% in 2008. Small and medium size enterprises are now covered by the code of conduct on business lending, which will promote fairness and transparency in the treatment of the small and medium enterprise sector by the banks and should facilitate access to credit for sustainable and productive business propositions.

Allied Irish Banks, Bank of Ireland and Ulster Bank will provide funding for small and medium size enterprises on foot of the €300 million facility provided by the European Investment Bank to assist developing small and medium size enterprises. Last May, the Minister for Finance and I established a credit supply clearing group with bank, business and State representation. This group is responsible for identifying patterns of events where the flow of credit to viable businesses appears to be blocked and seeking to identify credit supply solutions relating to these patterns.

We have published the Review of Bank Lending to SMEs, the Mazars report, which examined credit availability and recommended appropriate action. Follow-up work on implementing the recommendations in the Mazars report is ongoing through the work of the credit supply clearing group. To assist and complement the work of the group, the Minister of State at the Department of Enterprise, Trade and Employment, Deputy Billy Kelleher, held eight regional meetings over a two week period during June and July to discuss with representatives of business, banks and the State sector their experience of gaining access to bank credit at local and regional level. All these initiatives will help ensure that viable Irish enterprises have available to them the credit required to protect and grow their businesses.

We must, however, address one other fundamental problem. As my colleague, the Minister for Finance, has stated, concern about the impact of risky loans on the banking system continues to create funding difficulties for the banks and restrict the flow of credit. Every euro lent by a bank to a customer or an enterprise must be drawn from deposits or borrowed from somewhere else. Irish banks rely heavily on financial institutions abroad for funding. Uncertainty surrounding the scale of losses on the banks' balance sheets has made this funding more difficult and costly to attract. Added to this, uncertainty about the losses for the banks that will result from these loans leads to nervousness about adequacy of their capital. This can result in banks not providing the credit to enterprise that is necessary to support economic recovery.

The agency proposed in the Bill will lead to smaller, cleaner and better funded banks which can focus on their core, profit generating business, lending to the productive economy at a margin appropriate for the risk involved. NAMA will do this by buying the land and development property loans and certain associated loans from the banks at prices well under the current book value. These loans will then be managed by NAMA over time to achieve the best possible financial return for the taxpayer. Concern for taxpayers and enterprises is at the heart of the Government's approach.

Enterprises must be assured that the banks will be given specific direction as to what is expected of them. The Minister for Finance made it crystal clear yesterday that the banks should be extremely grateful for the continued support and forbearance extended by citizens and, in return, they are expected to provide appropriately risk adjusted credit to businesses to protect and create jobs.

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