Dara Calleary (Mayo, Fianna Fail) | Oireachtas source

I move:

That Dáil Éireann:

notes that:

— accessing credit remains very difficult for businesses and personal customers throughout the country;

— the continuing decline in the number of banks operating in the Irish economy, particularly in retail banking, will increase costs and reduce choice for businesses and consumers;

— there is a significant rise in the number of people accessing credit by means of expensive moneylenders;

— non-bank funding in Ireland is low by international standards; and

— there is a commitment in the programme for Government to establish a strategic investment bank;

recognises:

— the importance of credit for the small and medium enterprise, SME, sector in sustaining an economic recovery and supporting job creation;

— that competition and strengthened regulation are essential to a properly functioning banking sector; and

— that increased bank fees and charges are placing a significant burden on business and personal customers; and

calls for:

— the Central Bank to examine the competitive state of the Irish banking sector;

— action to encourage non-domestic banks to establish a retail presence in Ireland;

— verification that the State-supported banks are fully meeting lending targets;

— action to improve non-banking sources of funding for the SME sector;

— improved regulation of licensed moneylenders to protect consumer interests, and measures to tackle illegal moneylenders;

— a State-owned enterprise bank to be established as a permanent solution to the lending gap which exists in Irish banking; and

— action to be taken to ensure the long-term stability of the banking sector, taking into consideration the imminent report of the Committee of Public Accounts on bank stabilisation.

I apologise in advance for having to leave straight after my speech so I will not be able to hear the Minister's response. The recent decisions of Danske Bank and ACC Bank once again place in sharp focus the perilous state of business banking in Ireland. However, anybody in business does not need to be reminded of how serious the situation regarding SME credit and support for business is. The Danske Bank and ACC Bank developments are bad for business confidence and the wider economy and follow the loss of Halifax, Postbank, Anglo Irish Bank, Irish Nationwide and EBS, which was folded in to AIB. On a more positive note, we welcome the expansion of KBC Bank and the ambition of Permanent TSB to be a strong retail bank following the submission of its restructuring plan to the European Commission. Ulster Bank has recently announced that much of its Irish business will be put into an internally managed "bad" bank. It had been feared that Ulster Bank might decide to leave the Irish market entirely so it is welcome that RBS said Ulster Bank was an important business for the whole island of Ireland and added that it wanted to ensure it had a viable business model.

As the banking market has contracted, the dominance of two pillar banks - Bank of Ireland and AIB - is returning to levels last seen in the 1980s. As a result of the loss of competition, the two pillar banks now command approximately 70% of the current account market. That is not a healthy development in any market.

The lack of competition is leading to higher fees and charges, lower interest rates on deposits, high borrowing costs, a full-scale withdrawal of banking services in many communities, a restriction on services in others and a complete lack of innovative product choice. The small and medium enterprise, SME, community, in particular, is bearing the brunt of higher charges. Charges for coin lodgements have increased substantially in recent years. Some banks even restrict the days on which one can lodge coin in their various branches, such is their lack of regard for the realities of modern day business. The president of the Irish Small and Medium Enterprises Association, ISME, Eamonn Kielty, put it succinctly when he said last week: "A normal competitive banking market no longer exists in Ireland, and currently the banks are primarily concerned with self-preservation and deleveraging. As foreign banks exit stage left, the remaining bailed-out two will no doubt take advantage of the lack of competition to hike up their charges." That is representative of the views of those who are at the coalface every day.

Against this background, there is huge uncertainty within the banking sector in Ireland at present. It is our contention that the proposal before the House would serve to inject confidence to the banking market and the country generally, and would demonstrate a major statement of intent on behalf of the Government in terms of our economic recovery. A State enterprise bank, similar to those in Canada, the US and Germany and the model currently under development in the UK, should be considered for the provision of capital to growing businesses. There is a commitment to this notion in the programme for Government. Instead of long fingering this, the Government must act now and honour that commitment more than two and a half years into its term. An enterprise bank could be a permanent solution to the lending gap which exists in Irish banking. It would lend to any company, regardless of sector or size, provided it demonstrated its creditworthiness. It would remain in State ownership even after the State had sold its stake in the pillar banks.

An enterprise bank should have the following features. It should focus on smallscale lending up to €5 million. It would not seek to compete directly with existing banks in a way that would crowd them out, but provide a complementary source of finance. Funding decisions should be taken based on a rigorous assessment of a company's future prospects. Loans would not represent grant aid but would be soundly based on viable business plans. It should provide advice to borrowers in a way that assists the development of their business and benefits the wider economy. The establishment of an enterprise bank would be recognition of the importance of the SME sector to the economy and its recovery.

SMEs are the lifeblood of the economy, representing nearly 99% of active enterprise, 70% of all employment in the State and 46% of gross value added in the economy. The domestic SME sector is diverse in nature and employs workers with a much wider range of skills that the multinational sector. SMEs can range from the smallest business to local supermarkets and enterprises employing less than 50 people. Our jobs crisis cannot be solved in its entirety by focusing on foreign direct investment alone. By supporting the SME sector we are ensuring job opportunities for those with traditional skills as well as for people with high tech qualifications.

The Government has sought to roll out a series of SME-friendly initiatives and we have welcomed that. We also support the Taoiseach's aspiration that Ireland will be the best place in the world in which to do business by 2016. However, this will not happen while we have an impaired credit market. We do not support initiatives such as the changes in employers' PRSI, which will cost small business €22 million next year, and the abolition of the redundancy rebate. These initiatives will seriously add to the problems SMEs face in cash management.

Earlier this year Fiona Muldoon, the Central Bank's director of credit institutions, disclosed that half of the €50 billion in loans outstanding to the SME sector were non-performing. Many of the loans are backed by personal guarantees, meaning businesses and potential entrepreneurs are still trying to come terms with their debt. This is an issue on which the Central Bank must act urgently. There are many excellent and viable businesses which are important employers and contributors to their local economies, but which are being dragged down because of legacy debt. They can service their day-to-day business and financial requirements, but cannot service the legacy debt at this time. Given the chance to grow their business and get through this period, many of them will be in a position to service that legacy debt in a number of years. There must be an urgent and targeted initiative on the part of the Central Bank to assist these viable businesses and allow them to maintain employment and services in their communities, while at the same time negotiating with them to address that debt at a future time. This is exactly the type of role an enterprise-focused bank can have. It could roll out such an initiative.

The OECD, in its report on Ireland, noted that the banks have met the targets set by the Government for lending to SMEs. However, it found that two thirds of new SME lending is just rolled over on existing loans, while the overall stock of lending to SMEs is substantially declining. That proves what we all know from our daily interaction with people. New lending is actually overdrafts being converted to term loans, often without any notice to the borrower, or various limits being changed around into different products which are higher margin for the bank but more expensive to the customer. Central Bank lending statistics support this. They show that lending to non-financial or property-related small and medium enterprises was down by 1.4% between April and June, compared to the same period a year earlier, with the amount of credit outstanding to the sector now €1.5 billion less than at the same time in 2012. Yes, that represents a pay down of facilities but also, in many cases, a famine of credit facilities.

ISME's latest quarterly survey published in September found that 57% of companies that applied for funding in the last three months had been refused credit by their banks, compared with a 44% rejection rate in the last quarterly survey. On average, the decision time has increased from four to five weeks to get a decision. That is if the application was submitted. A total of 30% of respondents had increases in bank charges imposed during a lending process, while 11% suffered increased interest. Reductions in overdrafts were demanded of 31% of SMEs, up from 28% in the previous quarter. A steady 95% of respondents to the survey, people at the coal face, state that the Government is having either a negative or no impact on SME lending. While 55% of respondents are aware of the credit guarantee scheme, only 28% know about the microfinance scheme, down from 37% in the previous quarter. I will refer to those two schemes later.

A report by Bain & Company and the Institute of International Finance into European SME financing found an 82% drop in SME lending in Ireland, which was considerably worse than the other five European countries analysed. They included Portugal and Spain, two peripheral eurozone countries that, like Ireland, have had to rely on outside financial help. It also found that Irish SMEs are paying interest rates up to three times higher for lending than their German counterparts.

Finally, the Credit Review Office found in its 12th progress report, published in late September, that while the pillar banks continue to lend to low-to-medium risk credit applications, credit conditions remain tight overall and appeal requests are rising. That is a welcome initiative, but it shows the difficulties on the ground.

The Government will dispute these figures, but they are from the coalface. The ISME survey involved the men and women who every day must worry about how they are going to keep the doors of their businesses open and how they are going to pay the wages for their staff at the end of the month. Many of them pay their staff wages but do not take a wage themselves. They also worry about how to keep the Revenue Commissioners happy for another month. These are the people which banks leave waiting for five to seven weeks at a time. In anticipation of these figures being disputed by the Government, the motion calls for an independent review of how the pillar banks are meeting their targets. If they are supposed to be lending €400 million to SMEs, show us and an independent person where it is going.

I referred to some of the initiatives started by the Government. The Microenterprise Loan Fund during its first year of existence lent €1.62 million. At the time of its launch in October 2012, the Minister for Jobs, Enterprise and Innovation, Deputy Richard Bruton, said it would lend €40 million over five years, create 7,700 jobs and lend money to 5,500 businesses. We had a very good exchange with Microfinance Ireland earlier today at a meeting of the enterprise and jobs committee. It is working hard but its representatives stated clearly that microfinance is not a panacea to the credit crisis and it should not be seen as such. I hope Government Deputies noted that.

The seed and venture capital scheme was launched by the Minister, Deputy Bruton, to encourage venture capitalists to invest in companies that find it hard to raise money in their early years, such as technology start-ups. The Minister was hoping to invest €175 million into the scheme to leverage an additional €525 million from private investors. The "first of several calls for investment", to quote the advertisement, was made on 31 May and investors had until the end of June to express an interest.

Money has not yet been allocated under the scheme, despite this being the sector on which the Government is pinning so many of its economic recovery hopes.

The €450 million credit guarantee scheme, which has been up and running for approximately one year, offers a 75% State guarantee to banks against the losses on loans given to particular businesses. It was expected, and we were told, that it would provide an additional €150 million per year in lending for small businesses. In its first ten months, it has loaned only €8.5 million, with 393 additional jobs created and 119 jobs protected. This is so bad that the Government is reviewing the scheme a year into its operation.

We have many schemes and a great deal of spin, but we have very little extra credit or employment. We are more than half way through the life of this Government. Is it serious about the commitment made in the programme for Government? The Government parties are great at claiming that manifesto commitments are only manifesto commitments. To cite the Minister for Communications, Energy and Natural Resources, they are the kind of commitments one makes during an election. However, this commitment made it through to the programme for Government. It is the type of operation that will take time to establish. If the Government is serious about setting up an investment bank, it will commit to a timescale this evening.

The Labour Deputies are absent this evening. Perhaps they are modelling somewhere. Along with them, the Minister for Social Protection, Deputy Burton, championed the cause of an investment bank during the time of the former Government.

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