Brian Lenihan Jnr (Dublin West, Fianna Fail)

I accept that serious challenges remain for the banking sector. I have said that following the transfer of assets to NAMA it is likely some institutions will require additional capital to absorb the losses on these loans. To the extent that sufficient capital cannot be raised independently or generated internally, the Government remains committed to providing such banks and building societies with an appropriate level of capital to continue to meet their requirements. This will have to be done in a manner consistent with EU state aid rules. The level of capital that may be required has yet to be determined, though the Financial Regulator and my officials continue to monitor the position. Capital needs will only be identified once there is an indication of the haircut levels being applied to individual banks.

The banks have made, and will no doubt continue to make as necessary, provisions in respect of their mortgage books, consumer lending and commercial lending. It is a matter for each institution to decide within the appropriate regulations the level of provisions to set down for future write-downs. It would therefore be inappropriate for me to comment or speculate on the loan books of individual institutions.

The second Mazars report on credit availability, published in December, confirmed that while some SMEs are facing significant challenges accessing credit, and the sector in general is more conservative in its borrowing, nevertheless new lending is still taking place. However, the proportion refused credit, especially in certain sectors, remains a concern for Government.

Under NAMA legislation I will shortly issue guidelines to all banks participating in NAMA who lend to SMEs, to ensure that SMEs, sole traders and farm enterprises will have recourse to an independent, external review of decisions of credit refusal by the banks. I hope that banks not participating in NAMA or covered by the Government guarantee will also decide to participate. My aim is to have a simple, effective review process, run by people with experience and credibility. The banks must comply with the recommendations of the review process or explain why they cannot do so.

In addition to dealing with individual cases, the credit review system will examine the credit policies and practices of the banks in respect of SMEs. This will help me to decide what further action might be necessary to secure the flow of credit. I intend to publish the analysis from the review process so that the performance of the banks participating in NAMA will be clear to all. Work has been ongoing since December on the logistical aspects of the review system and it is envisaged that this will be completed shortly.

With regard to mortgages, the latest Central Bank statistics report, for December 2009, shows that residential mortgages outstanding were 0.3% below the figure for December 2008. However, the rate of reduction in activity in the third and fourth quarters of 2009 moderated. Many lenders are conducting extensive advertising campaigns, showing that competition is a real factor on the mortgage scene. The existence of that level of competition in the mortgage lending market is sufficient to ensure that credit institutions will lend to suitable qualified customers to remain competitive and retain their share of the market.

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