Brian Lenihan Jnr (Dublin West, Fianna Fail)

I am aware of the discussions that took place at the Joint Committee on Finance and the Public Service last week. My understanding is that the bankers in question expressed the view that there is not a shortage of credit available to business but that the risks taken by financial institutions must be compatible with the amount of capital they hold. Banks can currently access funds but the cost is higher than was previously the case. The banks' balance sheets will be stronger once NAMA has taken over the riskiest loans and replaced them with Government-guaranteed bonds; this will give the banks greater access to liquidity and make long-term funding cheaper.

I must point out that the value of the NAMA bonds will far exceed the incremental borrowing requirements of business and it would not be realistic to expect all of this money to be lent on. However, it is fair to assume the banks will be in a better position to lend once the riskiest loans have been removed from their balance sheets and that viable businesses should expect a fair hearing when seeking funding. I intend to issue guidelines to participating institutions to ensure this is the case and to devise appropriate appeal mechanisms.

A core Government objective is to free up lending on a commercial basis to support economic growth, and a number of actions have been taken to achieve this objective. In the context of the bank guarantee scheme and recapitalisation, the banks have made important commitments to support business lending. An independent review of credit availability was agreed in the context of the recapitalisation of AIB and Bank of Ireland. The report made a series of recommendations, including the further development of a framework for monitoring credit availability and measures to improve communications between the banks and SMEs. The report also suggests consideration of specific supports to ease the working capital requirements of SMEs and measures to help investment levels. A follow-up independent review of credit availability is currently under way and I expect it to be published shortly.

In addition, a code of conduct for business lending to small and medium-size enterprises took effect last March. As part of the recapitalisation package, AIB and Bank of Ireland confirmed their commitment to increase lending capacity to SMEs by 10% and provide an additional 30% capacity for lending to first-time buyers in 2009.

The latest statistics for credit availability, covering the period to October 2009, were published by the Central Bank on 30 November. They show that non-mortgage credit, which excludes lending to non-bank IFSC companies, was unchanged over the previous year. Headline private sector credit declined by €2.3 billion in October but this was mostly as a result of bad debt provisions for the month. Repayments were in fact marginally lower than drawdowns for the month. There was a 9% annual decline in credit outstanding to non-financial corporations in October, but three quarters of this was as a result of valuation effects.

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