Brian Hayes (Dublin South West, Fine Gael)

I move amendment No. 1:

To delete all words after "Dáil Éireann" and substitute the following:

"recognises that the Government inherited a severe banking, fiscal and economic environment this time last year caused by the economic and financial policies of previous Governments;

acknowledges that, during its first year in office, the Government has taken a number of significant steps to stabilise the banking and wider fiscal and economic situation;

recognises that the Government is aware of the increasing financial stress that some households are facing arising from difficulty in meeting their mortgage commitments;

acknowledges that, in response to this situation, the Economic Management Council established the Inter-Departmental Mortgage Arrears Working Group and that the group subsequently produced its report in September 2011;

notes that:

— the working group's report indicated that the mortgage arrears problem is complex and that a range of measures such as personal insolvency reform, mortgage to rent, the provision of independent mortgage advice, direct engagement by banks and the development of sustainable options by banks for their customers who are experiencing mortgage difficulty will need to be advanced to address the problem; and

— the Government has put in place a cross-Government high level group of officials to implement these recommendations;

notes and welcomes the fact that this implementation process on mortgage arrears will now be overseen and driven by a Cabinet committee, chaired by the Taoiseach;

encourages the Government to press ahead with this mortgage arrears implementation process to best support the mortgage holders, who cannot pay the mortgage on their home, in the most appropriate way having regard to the best interests of the taxpayer and society at large;

notes that:

— neither the Central Bank nor the Department of Finance has a statutory function in relation to interest rate decisions made by individual lending institutions at any particular time; and

— Permanent TSB did pass on, in full, the European Central Bank rate reductions in late 2011 to customers holding standard variable rate (SVR) mortgages and reduced further their loan-to-value standard variable rates to align them with the SVR;

acknowledges that the pricing of financial products, including standard variable mortgage interest rates, is a commercial decision for the management team and Board of each bank, having due regard to their customers and the impact on profitability, particularly where the cost of funding to each bank, including deposit pricing, is under pressure;

notes that the Central Bank has not requested the power to have regulatory control over the setting of retail interest rates and rather proposes that, within its existing powers and through the use of suasion, it will engage with specific lenders which appear to have standard variable rates set disproportionate to their cost of funds;

recognises that the Government has taken significant actions to ensure that credit is available to viable small and medium enterprises, SMEs, including the imposition of lending targets on the pillar banks which are more onerous than those imposed by the previous Government;

notes that:

— the pillar banks have met their lending targets for 2011;

— the Credit Review Office is available to ensure that viable businesses who are refused credit or offered it under overly onerous terms have a means of challenging the banks' decisions;

— the Government increased the threshold for reviews to the Credit Review Office to €500,000 to permit more decisions to be reviewed;

— the public interest would not be served by granting credit to non-viable businesses;

and

— the Government has committed to the introduction of a temporary partial credit guarantee scheme and to the introduction of a micro finance fund; and

calls on the Government to continue to ensure that policies implemented in relation to the SME sector provide that viable businesses can continue to access credit as appropriate.

Fianna Fáil tabled a motion to admonish the Government on commitments in a programme of assistance to which it signed this county up in the first instance. One of the core elements of the programme of assistance was that the State owned banks must be run on a commercial arms length basis. This has been explicit from the troika's very first involvement in the Irish programme. It has consistently stated that the pricing of loans and deposits had to be commercial decisions for the banks. The Opposition knows this and pretending otherwise is an act of gamesmanship to the public and to those hard-pressed mortgage holders.

Despite the programme necessity to separate the banks from the State, the Government is fully aware of the increasing stress that householders face arising from difficulties in meeting their mortgage commitments and obligations. The problem of mortgage arrears is an issue of the utmost importance for the Government and is being treated as such. We are continuing to introduce additional measures to support those who cannot pay their mortgages.

This Government has shown a robust and firm response to the banks since coming into office. We have used persuasion, hard talking and strong engagement with the banks on a daily basis through the new banking unit and the economic management council. That engagement will continue.

One of the important steps taken to protect mortgage holders experiencing difficulty in meeting their mortgage commitments is the code of conduct on mortgage arrears. This is now an important framework that governs the relationship between a borrower and a mortgage lender who is experiencing difficulty and provides a number of protections to the borrower. Forbearance is a very worthwhile and an appropriate response to most people experiencing mortgage difficulty. The approach set out in the code of conduct on mortgage arrears can provide a household experiencing temporary mortgage difficulty with necessary and important breathing space to enable that household get back on its feet and resume meetings its full mortgage commitments at a future time.

However, the Government also recognises that in certain circumstances, other approaches may be required. In view of this, the Government's economic management council decided last summer to establish an interdepartmental group chaired by Mr. Declan Keane to consider what additional measures could be introduced to assist people dealing with more significant mortgage difficulties. Two main objectives were set out for the group. The first was a desire, where appropriate and possible, to assist people experiencing real difficulties with their mortgage commitments to remain in their homes. The second was to ensure incentives would not be created that would encourage people who can pay their mortgage to stop doing so.

Members, and Deputy McGrath in particular, will be familiar with the recommendations outlined in the report. The Government accepted the Keane report recommendations and has put in place an implementation framework to advance this work agenda. The Government attaches a very high importance to this work, as is evident from the fact that a high level steering group was established to oversee and drive the overall implementation of the report's recommendations. This group is chaired by a very senior official in the Department of Finance and includes senior representation from other relevant Departments and from the Central Bank. To reaffirm the high political priority assigned to this work, the Government has also established a temporary Cabinet committee to oversee the implementation, on a cross-departmental basis, of the Government's overall response to this problem and to ensure that a high priority is assigned to the delivery of the implementation measures across relevant Departments and agencies. The committee will be chaired by the Taoiseach and will include all relevant Ministers and the Minister of State with responsibility for housing and planning.

Although I appreciate and understand the concerns Deputies will have regarding the speed of implementation of the various measures, it is necessary to acknowledge this is a complex problem for which there is no immediate or one size fits all solution. A number of different Departments and statutory bodies have roles in addressing particular aspects of the mortgage arrears problem. The individual banks also have a major contribution to make to the resolution of the problem which arises from the lending they initiated in the first instance. Nevertheless, it should also be recognised that significant progress has already been achieved in key areas of the mortgage arrears implementation strategy. The Minister for Justice and Equality, Deputy Shatter, has published the draft heads of a personal insolvency Bill. This draft Bill was submitted to the Oireachtas Joint Committee for Justice, Defence and Equality, whose findings were published on 6 March 2012. Its views, and those of other interested parties, will be taken into consideration in the further drafting and finalisation of the Bill which is due before the end of April, in line with a troika commitment.

The Central Bank has now received mortgage arrears resolution strategies and implementation plans from all licensed mortgage lenders and has engaged with the banks on these initial plans. In his speech of 2 March, the Deputy Governor of the Central Bank, Mr. Matthew Elderfield, set out the current status of this work. Although much work has been done in this area, the Central Bank has indicated that further action is still required. From the Government's perspective, more measured and progressive action is required to deal with households that are in an unsustainable situation. Work has advanced on the mortgage-to-rent scheme, with one such transaction agreed. In addition, a number of potential cases are now being developed in a pilot scheme that involves AIB and the Cluid housing association. The Department of Social Protection is examining issues relating to the establishment of the mortgage advisory function but must do so in the context of the role envisaged for personal insolvency trustees, as outlined in the heads of a personal insolvency Bill, to ensure that there is no duplication of services. We should not forget that the recent implementation of the programme for Government commitment to increase the rate of mortgage interest relief to 30% for first-time buyers who took out their first mortgage in the period 2004 to 2008 will also be of more general assistance to people who are most likely to have the greatest affordability challenge on their mortgage.

I turn to the issue of mortgage interest rates. Neither the Central Bank nor the Department of Finance has a statutory function in regard to interest rate decisions made by individual lending institutions at any particular time. Interest rates are determined by a broad range of factors including ECB base rates, deposit rates, market funding costs, the competitive environment and an institution's overall funding. Ultimately, the pricing of financial products, including standard variable mortgage interest rates, is a commercial decision for the management team and board of each bank, having due regard to its customers and the impact on profitability, particularly where the cost of funding to each bank, including deposit pricing, is under pressure.

The cost of wholesale funding for Irish banks, when available, remains elevated, as does the cost of deposits. The competition between domestic and foreign banks for deposits has resulted in deposit pricing increasing significantly in order for those institutions to retain or grow market share. Although this competition is of benefit to consumers, it is resulting in increased cost of funding for the banks and further pressure on margins. The Deputy Governor of the Central Bank has stated to the Government that, within its existing powers and through the use of suasion, the Central Bank will engage with specific lenders which appear to have standard variable rates set disproportionate to their cost of funds.

Deputies will be aware that Permanent TSB passed on both the interest rate cut of 25 basis points announced on 3 November and the 25 basis points cut announced on 8 December 2011 by the ECB to all mortgage customers. In addition, on 8 December 2011, the bank also reduced the rates applying to a number of variable rate mortgages held by both residential and investor customers by as much as 71 basis points, including the impact of the ECB's reduction of 25 basis points. The PTSB standard rate now applying to variable rate mortgages for owner occupiers is 5.19%. The majority of outstanding balances on Permanent TSB mortgages, some 65% of the total, are tracker mortgages which, of course, are to the advantage of the borrower. The vast majority of these tracker mortgages were issued during the boom years and, therefore, are at competitive rates. Almost all the other mortgages are on variable rates and I understand the average balance on each individual mortgages is under €90,000.

The Government is very conscious of the difficulties facing variable mortgage customers. I understand Permanent TSB is in the process of reviewing its long-term strategy with a view to agreeing a way forward with the authorities by the end of April 2012, as agreed with our external partners in the latest memorandum of understanding, dated 10 February 2012. The Government is fully engaged with this problem. This work is ongoing. As we have shown in the past, we will use every means possible to ensure fairness for all mortgage customers. That includes Permanent TSB mortgage customers. All of us recognise this problem is complex and will not be solved by a single solution, or in a very short period of time. It will take a range of responses from a number of different bodies and will also take time to implement fully and take effect. However, the Government is committed to making the sustained effort that will be necessary to address the mortgage arrears problem, including, I reiterate, the problems that exist for customers of this bank.

I refer to the issue of credit for SMEs. The Government recognises the SME sector is a linchpin in the recovery of the economy and it has directed a number of policy initiatives to ensure an adequate supply of credit to the sector. The banking system restructuring plan creates capacity for the two pillar banks, Bank of Ireland and AIB, to provide lending in excess of €30 billion in the coming three years. SME and new mortgage lending for these banks is expected to be in the range of €16 billion to €20 billion over this period. This lending capacity is incorporated into the banks' deleveraging plans which allow for repayment of Central Bank funding through asset run-off and disposals over the period to 2013.

With regard to the availability of credit for small and medium enterprises, the Government has imposed lending targets on the two domestic pillar banks for the three calendar years, 2011 to 2013, inclusive. Both banks were required to sanction lending of at least €3 billion in 2011, €3.5 billion this year and €4 billion in 2013 for new or increased credit facilities to SMEs. These followed on the initiatives taken by the previous Minister for Finance, who first set lending targets for the recapitalised banks. Both banks achieved their 2011 targets.

Targets are for approval of credit, targets have not been imposed for drawdown and I have no plans to introduce such targets at this time. The drawdown of funding is at the discretion of the borrower and many factors affect whether funding is drawn down, such as changes in market conditions or company restructuring. The Mazars survey of SME lending, conducted on behalf of the Department of Finance, found that the most frequently cited reason for not availing of approved credit was that it was not needed at the time.

In terms of the banks imposing strict conditions on loans, if a borrower believes a bank has attached terms and conditions to a loan such that it cannot be accepted, borrowers have the right to appeal through the bank's internal loan appeals process, which is the first step that should be taken. If the appeal to the bank is unsuccessful, the Credit Review Office will review the decision and make an independent recommendation on the refusal. It is worth noting that, of the appeals made to the office, in approximately half of cases the CRO has recommended that the credit should be granted. I encourage SMEs that feel they have been unfairly treated to use the services of the CRO.

Regarding the comments of the Governor of the Central Bank on tough credit conditions in Ireland for SMEs, the European survey of Irish SMEs is based on a relatively small survey population - in the low hundreds depending on the question - and, in the case of the data on the successful application rates for bank loans, the sample size for SMEs surveyed appears to be 74. The overall EU survey confirms that the sample is representative for the four largest euro area states. Therefore firm conclusions should only be drawn in respect of the larger countries.

See this speech in context