John Moloney (Laois-Offaly, Fianna Fail)

I thank Deputies Feighan and O'Mahony for raising the issue.

The covered institutions financial support scheme, which guarantees the liabilities of the covered institutions, was put in place in September 2008 to maintain the stability of the financial system in Ireland. Without it the covered institutions would not have been in a position to lend to the real economy. However, the scheme did not impose any lending requirements on covered institutions. Both Allied Irish Banks and Bank of Ireland have made explicit commitments on lending in the context of the recapitalisation package announced on 11 February this year. The banks reconfirmed their December commitment to increase lending capacity to small and medium enterprises, SMEs, by 10% and to provide an additional 30% capacity for lending to first-time buyers in 2009. If the mortgage lending is not taken up, the additional capacity will be available to SMEs. AIB and Bank of Ireland have also committed to public campaigns to actively promote small business lending at competitive rates with increased transparency on the criteria to be met.

Building on the banks' commitment to the indigenous venture capital sector, both banks have further committed in excess of €15 million each to new or existing seed capital funds in collaboration with Enterprise Ireland's seed and venture capital programme to further create and develop indigenous enterprise. The banks' funding will be matched as appropriate by funding under Enterprise Ireland's programme and-or by funding from other national or international investors. The supplementary documentation on the National Asset Management Agency issued in September gives details of SME lending by AIB and Bank of Ireland.

Prompt payment is important to underpin cashflow, particularly for small businesses. The recapitalised banks have committed to prompt payment arrangements in future customer contracts, which will involve payment within 30 days and a late payment interest charge on any payments made after 30 days. The Financial Regulator has been monitoring compliance with the above commitments and no issues have arisen requiring attention. The Government has introduced arrangements to reduce the payment period by Departments to business from 30 to 15 days.

In addition, my colleague, the Tánaiste and Minister for Enterprise, Trade and Employment has set up a clearing group, including representatives from the main banks, business interests and state agencies, which is chaired by her Department. The purpose of the group is to identify specific patterns of events or cases where the flow of credit to viable businesses appears to be blocked and to seek to identify credit supply solutions. Businesses have been invited to send details of such credit refusals to a dedicated e-mail contact point at the Department. Although the group cannot act as an appeal mechanism for individual cases of credit refusal, it is charged with seeking to identify credit supply solutions relating to any patterns identified. Information provided by businesses will inform and assist this work.

There was some controversy about the perception of credit availability in the economy. The Government, therefore, investigated the issue through a comprehensive independent review of SME lending from both the demand and supply perspective. This was undertaken in the context of the recapitalisation and was published in July. The review showed that demand had fallen sharply, with the value of new applications for credit down by 42%. Stock of credit remained static, indicating that new credits matched repayments. I understand that in a normal year between 15% and 20% of outstanding credit might be repaid and, therefore, significant lending must take place, even to keep the figure constant. The review, conducted by Mazars, found that refusal rates vary markedly by sector from 6% to 48%, according to the SMEs surveyed. This finding clearly contradicts the allegation of a blanket refusal to lend. Mazars also examined a sample of files where credit was refused and found that, in general, "refusal seemed reasonable in the context of normal commercial and business criteria".

A follow-up review covering the period to September is under way. The institutions covered by the guarantee are monitored by the Financial Regulator on a regular basis and monthly figures for SME lending indicate that substantial flows of credit are taking place, even though activity is down on previous years.

See this speech in context