John Deasy (Waterford, Fine Gael) | Oireachtas source

I wish to make a quick point about lending in general or the lack of it. By default I am making an argument about how important credit unions are because of what is happening or not happening in the area of lending in the country. Last week, we were informed that the number of new mortgages issued by Irish lenders is at 1970s levels. At the same time Allied Irish Banks maintains that it is approving seven out of ten mortgages and that it will comfortably exceed its target of €1 billion in mortgage sanctions for 2012. This is something of a contradiction. On the one hand we are back to 1970s levels but, on the other, everyone is meeting their targets. In other words, the banks' targets are so low that they cannot but be reached. Last month, we were told by the Credit Review Office that while AIB and Bank of Ireland continue to report that more than 80% of formal loan applications are sanctioned, lending policy has tightened in 2012 for the more challenged small and medium enterprises and farms. This is what I am encountering in Waterford and this is what people working in banks in Waterford are telling me.

The Credit Review Office has said that far more could be done to assist access to credit. Since the office opened, a total of 96 of the 207 applications for credit that were refused have been overturned, a high percentage. Farmers in particular are feeling the effects of the lending drought while costs continue to rise. On the flip side, the Irish Banking Federation has stated that the granting of credit is not a frivolous activity, that banks want to know that they will get their money back and that the business in question must have a sustainable future. However, I believe in some cases banks are not lending to businesses which they know have a sustainable future. There is a problem with what is being said publicly and what is actually happening.

Ireland is second only to Greece in terms of refusing loans to small businesses. Small and medium enterprises in Ireland are twice as likely to have a loan application turned down compared to the eurozone average. The information I have received from bank employees is that systems are in place now which are unreasonable when it comes to assessing a loan application. Increasingly, the banks are using what is termed soft underwriting tactics and have removed all power from the local bank managers to sanction loans. Given the damage some of these local bank managers did by lending to developers, many would suggest that is not such a bad thing. Unfortunately, however, we have gone to the other extreme. The practices of bankers and lenders are hurting the economy in a completely different way now. An AIB employee explained the problem to me recently, suggesting the lending procedures during the past two years have made it difficult to deliver to small and medium enterprises, and that a new set of guidelines were so complex that they have had to be amended and rewritten within the first year. The levels of individual discretion at branch level has been reduced or removed which in some, but not all, cases is not sensible. Overall, the process has become remarkably cumbersome. The State must measure this process because if credit does not flow quickly from sanction to drawdown there is a basic problem with the process and, by extension, with a critical component of our economy's recovery. The State must begin to question the process of lending in the main banks rather than simply wait every year for the Credit Review Office to publish figures that spell out what we already know.

I do not believe everything bankers tell me but the people I know who work in banks, who cringe and acknowledge frankly the damage they did during the boom years, inform me that the system of lending in place in banks is not doing country or the economy any favours. The new lending practices within these banks need immediate Government oversight.

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