Michael McGrath (Cork South Central, Fianna Fail)

This matter will be of interest to many of the retailers in the country, some of whom are here tonight. At the outset, I thank the Office of the Ceann Comhairle for selecting this important matter for the Adjournment Debate.

When speaking on a Private Members' motion two weeks ago here in this House, I stated that job retention and job creation must be the first national priority for us as a country and for the Government. It is clear that the banks are not meeting the needs of the economy. Recently, ISME released a survey which confirmed that 55% of companies who applied for funding in the past three months were refused credit by their banks.

Like every Deputy in this House, I have a number of examples of constituents who are in business who have had loan applications refused and even in the case of those who currently have loan agreements, where such an agreement comes up for renewal the bank is taking the opportunity to significantly increase its margin on the loan. For example, in the case of a Cork business which has a loan of €430,000 with a bank, up until a recent loan agreement review the bank's margin was 1.5% and on review of the loan agreement the bank took the opportunity to increase that from 1.5% to 4%, an increase of 166% on the bank's margin. One can imagine the impact of that on any business.

It is disheartening to see viable businesses in the country collapsing because of the lack of cash. Even a highly profitable business can go under without an adequate supply of cash flow. The old adage that cash is king was never more true than it is at present.

We also must acknowledge that we are not trying to revert back to the days that prevailed at the height of the Celtic tiger boom, where grossly excessive and recklessly irresponsible lending was at the heart of the banking crisis with which we now must deal. We need to find the correct balance whereby the banks move to a position where there is an appropriate sustainable level of lending to viable business.

It is clear that the banks in Ireland are rebuilding their balance sheets. They are competing vigorously for a deposit base, but they are not competing anywhere near as vigorously for customers to whom to lend. They do not have an adequate supply of funding to lend and meet the needs of the economy.

It is true that NAMA will help the banks to rebuild their funding base by exchanging the illiquid property loans for the liquid NAMA bond asset, which they can encash at the ECB. NAMA will help, but will not, in itself, resolve the credit issue in the economy. The reality is that shortly, once the NAMA transfers begin to go through, the banks will have to be recapitalised. Hopefully, this will be from private funding sources but, where necessary, the Government has indicated that it is willing to provide additional capital.

In the event that the Government must provide additional capital, it is essential that the provisions enacted in this House under section 110 of the NAMA legislation - which empower the Minister to issue guidelines regarding lending practices and procedures to facilitate the availability of credit to classes of borrowers or potential borrowers, including small and medium-sized enterprises - are invoked and that clear and rigid guidelines are issued to the banks which must be complied with in terms of having an appropriate level of lending in the economy.

I welcome the fact that the credit review system will be established. It is a historic development that persons who have been refused credit by their banks will have recourse to an independent external review of decisions of credit refusal by NAMA participating banks.

Perhaps it is time that we look at the possibility of introducing a loan guarantee scheme for small and medium-sized enterprises - the Department of Enterprise, Trade and Employment has raised this issue. Many of our trading partners operate such schemes. In the UK, for example, up to 75% of the loan value can be guaranteed by the state. Such a scheme has been in place since 1981. There is a good Canadian study which compares the various small and medium enterprise, SME, loan guarantee schemes across Europe.

It is essential the issue is dealt with comprehensively to ensure the banks can meet the needs of the economy and extend the appropriate level of lending to SMEs so they can come through this difficult recession.

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