Brian Lenihan Jnr (Dublin West, Fianna Fail)

This note will be payable over ten to 15 years, which will reduce the impact on the Exchequer this year. Following the investment by means of the special investment shares, the State will have extensive powers as well as economic ownership of Irish Nationwide Building Society. As a result, the State will control the society.

Following the transfer of €9 billion of its loan book to NAMA, Irish Nationwide Building Society, INBS, will have a small mainly residential loan book of approximately €2 billion. In such circumstances, the institution does not have a future as an independent stand-alone entity. The Government's priority will be to secure a swift sale of the society or its integration with another entity. All options will be fully examined in the institution's EU restructuring plan which must be completed within three months. Deposits in the society are secure and it will continue to have adequate regulatory capital. As in the case of Anglo Irish Bank, a new management team is now in charge of Irish Nationwide Building Society, INBS. I will insist on board changes in the changed ownership circumstances.

The EBS will transfer approximately €140 million of assets to NAMA in the first tranche, which represents 14% of its €1 billion NAMA assets. The Agency has confirmed that it will buy the loans transferred in the first tranche at an average discount of 37%. Taking account of this and his broader assessment of the building society, the Regulator has determined that the society will need an injection of €875 million to meet the target sufficient to ensure 8% core tier 1 capital. To secure the Educational Building Society's immediate capital position, the State will provide it with €100 million of capital through the issuance of special investment shares in a manner consistent with the EU State aid rules. The issuance of these shares by EBS was approved by the society at its Extraordinary General Meeting in December 2009 and will give the State extensive powers and full economic ownership of EBS. The State will, therefore, have control over the future strategic direction of the society.

The EBS is currently exploring the availability of private market capital and has had an expression of interest from a private party. Any private capital transaction will need to comply with the relevant European Commission guidelines for an institution in the receipt of State aid. To the extent that private capital is not forthcoming, the remaining capital requirement will be met partly or fully through the issuance of a promissory note from the State to the institution which will enhance the society's core capital by the same amount. If the promissory note is used, it would again reduce the impact on the Exchequer this year as the cost of the note would be paid over a period of ten to 15 years. The EBS will be required to submit a restructuring plan to the European Commission that will examine all options for the direction of the society by the end of June.

Whatever outcomes emerge, there is no doubt that, notwithstanding the differences between them, each society must recognise the position they have gotten themselves into. They must focus on making themselves more efficient. Their future value will be enhanced by a committed drive to improving efficiencies in the coming months. I am strongly of the view, and I am committed to ensuring, that the residential mortgage sector in Ireland is competitive. We want to see an appropriate number of participants in the market in order to meet future demand. Irish Life & Permanent is not taking part in the NAMA process. The regulator is satisfied that Irish Life & Permanent has sufficient capital to meet its needs. The regulator will continue to monitor the capital needs of Irish Life & Permanent and is in discussion with it.

The burden on taxpayers stemming from the losses incurred in our banking system is horrifying. Unless we face up to these losses now, we will not have a functioning banking system and the economy will not recover. My overriding concern throughout this financial crisis has been to get credit to viable businesses, especially small and medium-sized enterprises, which will lead our way out of this recession. The actions I have announced today will put the banks in a much stronger position than before.

I am imposing specific lending targets on AIB and Bank of Ireland. They will make available for targeted lending not less than €3 billion each for new or increased credit facilities to SMEs in 2010 and 2011. This, in particular, must include funds for working capital for businesses. This will be a significant increase on the figures reported by the banks for 2009 and will help to sustain the economy and foster growth. They will be reviewed as the needs of the economy change. Bank of Ireland and AIB must also make available €20 million each for seed capital to be provided to Enterprise Ireland supported ventures, building on the very successful programme launched in 2009. They will each set up a fund of up to €100 million for environmental, clean energy and innovation projects, in addition to the €100 million provided under the recapitalisation last year.

Historically, Irish banking has focused too much on property-related lending. It is fair to say that our banks have not been very well acquainted with our modern economic sectors. This will have to change. For that reason, I am requiring the banks to commit resources to work with Enterprise Ireland and the IBF to develop sectoral expertise in the modern growth sectors of the Irish economy; to explore with Enterprise Ireland and the IBF how best to develop the range of banking services that Irish enterprises trading internationally will need; and to develop expertise and bring forward new credit products in areas where cashflow, rather than property or assets, is the basis for business lending.

In line with the renewed programme for Government, the two banks will be required to submit SME lending plans by geography and sector for 2010 and 2011 in light of the €3 billion target. These plans are to be submitted to my Department within six weeks. They will be reviewed by Mr. John Trethowan, an experienced banker with a demonstrated commitment to public and social service who will be examining bank lending policies as part of his remit as credit reviewer. It is important to stress that credit can only go to viable businesses. The last thing we need is for the banks to incur high losses on risky loans. That sort of imprudent lending must be a thing of the past. The Government will decide, following Mr Trethowan's review, whether further action on lending targets is needed, and what action should be taken.

AIB and Bank of Ireland will also be subject to a credit review process, headed by Mr Trethowan, which will allow individual enterprises, sole traders and farmers who have had credit refused or withdrawn to apply for an independent review of the bank's decision. Where the reviewer recommends that credit should be granted, the bank is required to comply with the recommendation or explain why it will not do so. This process will also provide me with an accurate assessment of banks' lending policies and procedures. The administrative arrangements are in place and the statutory instrument is being laid before the House today. Accordingly, applications for a review will be accepted from today. The credit review process will give viable businesses in all sectors an opportunity for an independent second opinion, where credit is refused or withdrawn. The review will ensure that the banks, which have been supported by the State and the taxpayer, comply with their responsibilities to our economy. Mr Trethowan will outline his work in this area later this week.

The prospect of a family losing its home is one the most appalling vistas in any recession. Those who find themselves in this position are likely to have lost their jobs as well. I do not need to tell anyone in this House the havoc and trauma such events can visit on the lives of those affected. The Government has taken a number of initiatives to support those having difficulty with their mortgages. It has introduced the statutory code of conduct on mortgage arrears for all lenders; extended the six-month moratorium on legal proceedings to 12 months; refocused mortgage interest relief on those who bought their homes at the peak of the market with extensions up to the end of 2017; provided financial help to over 15,000 families through the mortgage interest subsidy scheme; and increased the advisory services provided through the Money Advice and Budgeting Service.

In addition, the Irish Banking Federation has said where a satisfactory arrangement is reached and adhered to, its members will not take legal action against borrowers. The number of mortgage holders in arrears is still increasing, although more slowly than before. In general, repossession rates in Ireland remain extremely low. The guaranteed institutions told us that last year they sought and obtained orders for repossession through the courts in just 28 cases.

The question that has been asked in this House and outside is how banks that have been rescued by the State can be allowed to pursue homeowners experiencing difficulty with their mortgages. I acknowledge the anger and frustration of those who ask this question, but the Government's measures have been successful in minimising the number of repossessions and the institutions which have had most recourse to the courts are not covered by the guarantee. We must be careful that our efforts to help home owners do not store up more problems in the banking sector that will require further calls on the taxpayer. The revamped mortgage and debt group, which I announced recently, has started its examination of the extent of the problem of mortgage default and will report to me on a rolling basis on the most sensible and effective way to deal with this problem.

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