Brian Lenihan Jnr (Dublin West, Fianna Fail)

The time has come for me speak to my amendment and then I will respond to the various comments made in what was a very useful debate.

I indicated during the Committee Stage debate last week that I would amend the Bill to provide the Minister with a power to issue guidelines to the participating institutions on lending practices and procedures to improve the flow of credit to small and medium-sized enterprises and, if necessary, to other sectors. The power is a wide-ranging one. It will allow for a response adapted to the particular circumstances of different industries, sectors and institutions. The approach recognises that this is a complex situation and allows for a flexible response to changing credit needs. That is one of the reason the word "may" was used rather "shall" because the word "may" gives the Minister more permissive powers to intervene than the word "shall", which imposes a solitary obligation. This is an ongoing responsibility which will be vested in the Minister. The imperative character of the section can be seen in subsection (2) which provides that "a participating institutional shall comply with any guidelines issued" under the subsection. That is the important imperative mood in the amendment.

I consider that the banks are generally in the best position to make the commercial decision on whether to make credit available for a particular business proposition. They are familiar with their existing customer base. They have considerable expertise in analysing these propositions, including the terms and conditions under which they are prepared to lend. That all assumes a well-funded banking sector. However, there is a danger that the banks have become too risk averse and are refusing credit when the business would be in a position to repay the loan. There is also a danger that, starved of cash, the banks, in any event, are not in position to afford adequate credit.

It is clearly in the interests of the banks to lend to small and medium-sized enterprises who will be able to repay the loans. That is the business of the banks and they derive their income by charging interest on the credit provided. We need to be clear that it is not in the interests of the banks or the economy for the banks to lend to businesses that cannot repay the loans. This is the cause of some of the difficulties in which we currently find ourselves.

However, when the banks become too risk averse and refuse to lend to viable businesses, a self-fulfilling prophesy can develop whereby businesses become less viable because they cannot get finance for much needed working capital and cash flow. If one listened, as I have with great care, to many debates, one will note that the essence of the problem is the availability of much needed working capital and cash flow for businesses that are already operating in the State.

The demand survey conducted by Mazars found that the most common reasons for requests for new credit were for working capital and cash flow reasons, to address declines in business revenues and to support a slowdown in debtor collection. These are areas which I will have to consider in the guidelines to participating institutions.

I have always made it clear that the agency will make it possible for banks to lend to the real economy on a greater scale than would otherwise be the case. The purpose of this amendment is to provide the power to make sure that the NAMA benefits can be translated into a freer flow of credit to viable businesses and, if necessary, to other sectors.

As well as guidelines on the lending practices and procedures - this is an important issue arising out of the reservations Deputy Higgins expressed about the form of the amendment - the amendment permits the issuing of guidelines relating to the review of decisions of participating institutions to refuse credit facilities. It would be possible, for example, under this section to designate a pool of lending which would be available to an appeal body to directly provide credit in the event of a refusal by a participating institution. Deputy Higgins was rightly exercised about the question of how one would enforce the guidelines in the absence of compliance. That is why I have provided a separate paragraph (b) in subsection (1) relating to the review of decisions of participating institutions to refuse credit facilities. I agree that the mere issuing of guidelines and the submission of a report of compliance with guidelines will not meet the type of case, which all of us have encountered and many Members have mentioned in the course of this debate.

We are all familiar with the complaints of those who cannot get credit. The banks will rightly say that some businesses are not capable of supporting the level of credit sought, and that it would not be appropriate to make certain loans. However, we know that banks are imperfect institutions, capable of mistakes, and business men and women are entitled to be sure that their applications have had a proper hearing. It is clear, therefore, that there is a need for an appeal mechanism to review decisions of the banks in this area. This is a complex area and it needs to be teased out with the banks. I reject utterly the suggestion Deputy Costello mentioned that the form of this section in some sense originated with the banking sector. The banks have not been consulted about the formulation of this section. My officials have worked on this section and prepared it for me, having listened to the debate in this House. This is a complex area and it needs to be teased out now with the relevant institutions. If the House adopts the amendment I propose, I believe it will strengthen my hand in my discussions with banking institutions. My objective is to ensure there are mechanisms in place, with a strong input from outside the institutions, to allow potential borrowers a right of review where credit is refused. Discussions are ongoing on how this can best be achieved.

I would like to go through the contributions that were made to the debate, which were very useful but require fairly detailed examination. Deputy Morgan rightly made the point that we have moved from a position where there was too much credit to one where we now have too little credit. There is a balance here. It is clear from changing the regulatory system that banks will be far more risk averse in the next decade than they were in the past decade. That was a crucial element in arriving at a final figure for the valuation of assets which NAMA is acquiring.

Deputy O'Donnell also raised the question of credit. I should have said to the House that another Mazars report will be forthcoming at the end of the month. The Deputies were dissatisfied with the original Mazars report. In fairness to Mazars, that was its first bite.

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