Michael Noonan (Limerick City, Fine Gael) | Oireachtas source

I move amendment No. 2:

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

“notes that, in order to ensure an adequate flow of credit to viable companies, this Government in 2011 imposed challenging targets on AIB and Bank of Ireland for lending to small and medium businesses, and continues to monitor the banks’ progress in meeting these targets;

acknowledges that the Credit Review Office is available to businesses refused credit by Bank of Ireland and AIB and has overturned over half of the cases referred to it and encourages businesses to use this important facility;

notes that:— both AIB and Bank of Ireland have stated that they have set aside €2 billion each for new mortgage lending in 2013, while Permanent TSB has indicated that it is prepared to lend

over €300 million in this area; and

— this Government inherited an economy with a severely impaired banking system but has moved to ensure, through the implementation of effective policies to promote economic

growth, that Ireland remains an attractive location in which foreign banks can operate;

acknowledges that, while the number of consumers choosing to make use of the services offered by licensed moneylenders has increased by 20 per cent since 2005, the majority of moneylenders’ customers reported high satisfaction levels regarding service and believe that they are treated fairly when in arrears;

notes that:— moneylenders are licensed and regulated by the recently-strengthened Central Bank and that consumers continue to be protected by the Central Bank’s Consumer Protection Code

for Licensed Moneylenders; and

— Ireland is leading the dialogue across Europe on how best to expand market-based non-bank financing and that the recent budget included initiatives to encourage equity investment

in Irish businesses;

further acknowledges that:

— the programme for Government contains a clear commitment to creating a strategic investment bank that will become a provider of finance to large capital projects, a conduit for venturecapital, and a lender to small and medium enterprises, SMEs; and— while the Government’s priority at present is the creation of the Irish strategic investment fund and the reorganisation of the National Pensions Reserve Fund, which can makeinvestments more quickly than would be possible were the Government to establish a bank for this purpose, it is intended, in parallel, that the strategic investment bank concept will be further considered;recognises that the National Pensions Reserve Fund has established funds that support both strategic projects and a number that support SME financing;

accepts that SMEs are the engines of economic growth providing over two thirds of employment in the State and that the Government has charged the SME State bodies group with the task of implementing initiatives aimed at meeting the needs of Irish businesses for access to a wide range of bank and non-bank finance as set out in the Action Plan for Jobs;

further recognises that Ireland, in the course of its recent Presidency of the European Union, played a key role leading the debate at EU level to ensure that banks in Europe will be well regulated, well capitalised and sufficiently robust to withstand economic cycles;

notes that a number of significant legislative reforms have been undertaken since the financial crisis aimed at building a strengthened regulatory framework for the Irish financial services sector and responding to the pre-existing shortcomings that had been identified in our system of financial regulation;

further notes that these legislative reforms have been supplemented by a significant increase in regulatory activity by the Central Bank with a corresponding increase in staff numbers and powers; and

notes that section 149 of the Consumer Credit Act 1995, as amended, provides that credit institutions and bureaux de change must notify the Central Bank if they wish to introduce any new customer ‘charge’ for providing a service or increase any existing customer ‘charge’ for providing a service.”

I wish to share time with Deputies Dominic Hannigan and Tom Barry.

As the Government's counter-motion makes clear there can be no doubt that the legacy issues facing this country, its people and its enterprises are serious in nature and many in number. However, it should also be clear that this Government has moved to tackle these issues head on, both at home and with its partners in Europe. Furthermore, the Government continues to make all efforts to strengthen our economy through encouraging business, improving regulation of our banking system and ensuring that Ireland and its people are served by financial institutions that add value to the economy.

It is the Government's vision that all viable businesses operating in Ireland should have the opportunity to access sufficient finance to meet their enterprise needs in a manner that supports growth and employment in the economy. Therefore, credit availability for SMEs is a key aspect of the Action Plan for Jobs 2013. The working capital requirements of many SMEs are often fulfilled by short-term credit in the form of overdrafts or short-term loans.

Additionally, the Government has imposed challenging SME lending targets on AIB and Bank of Ireland for the three calendar years, 2011 to 2013. Each bank was required to sanction lending of at least €3 billion in 2011, €3.5 billion in 2012 and €4 billion in 2013 for new or increased credit facilities to SMEs. Both banks have reported that they achieved their 2011 and 2012 targets and a recent Credit Review Office quarterly report commented that both banks are on track to achieve their €4 billion loan sanction targets, assuming the pattern of previous years of a strong fourth quarter performance is repeated.

It is vital that the banks continue to make credit available to support economic recovery. However, it is not in the interest of the banks, businesses or the economy for finance to be provided unless the business is viable and has the capacity to meet the interest payments and repay the sum borrowed.

The Credit Review Office was established to help SME or farm borrowers who have had an application for credit declined or reduced, and who feel that they have a viable business proposition. AIB and Bank of Ireland are expected to lend to viable businesses both for investment and working capital purposes. The recent CRO report shows that the Credit Review Office upheld the credit appeal in 150 cases, or 55% of cases decided. The upheld appeals have resulted in €18.5 million in credit being made available to SMEs and farms, protecting 1,521 jobs. This shows that there is a strong prospect of success for SMEs going to the Credit Review Office and SMEs refused credit are strongly encouraged to seek a review by the office.

I introduced a number of measures in the budget for funding growth in the SME sector. There is to be a substantial increase in the upper limit for loan applications that can be appealed to the Credit Review Office, from €0.5 million to €3 million, to facilitate requests from a broader range of SMEs. The level of awareness among SMEs and entrepreneurs of the full €2 billion suite of developmental business supports remains low. In order to address this, a comprehensive communication strategy will be rolled out in the coming months. To improve the framework of credit supports available to SMEs, a subsidised financial training programme for small businesses is being introduced, consisting of two days dedicated off-site training, together with expert mentoring support. Work will be undertaken with the European Investment Bank to develop a tailored and customised trade finance initiative to support the growth of the export sector, providing much needed finance to exporters and restore confidence, support trade and foster growth and employment. We will address specific challenges of funding international trade through a broader suite of financial products. These initiatives form part of an existing suite of measures to assist the SME sector. Enterprise Ireland offers a range of schemes to small businesses and the Minister for Jobs, Enterprise and Innovation has introduced the credit guarantee scheme and the microenterprise business lending scheme.

We are able to tailor our policies to the needs of the SMEs as we actively listen to the enterprise community and react where we see the need for and possibility of government intervention. The Department of Finance commissions biannual surveys of the demand for credit from SMEs. The results inform and guide the Government's policy on securing and maintaining the availability of credit to SMEs. The survey results also provide useful information to the banks, SME representative organisations and individual SMEs, as well as the Credit Review Office on what they can do to assist in the flow of credit to viable businesses. Another benefit of these surveys is that they assist in clarifying the often conflicting perspectives presented in respect of the availability of credit and the actual demand for credit among this important sector of the economy.

The National Treasury Management Agency and in particular, the National Pension Reserve Fund, have been activated to help funding into the real economy. In many cases they are in partnership with private sector investors. To date, the NPRF has established the following: the SME equity fund will focus on investing in healthy businesses seeking to grow, including those with overleveraged balance sheets. This fund involves a contribution from the NPRF of €125 million with an ultimate fund size of €350 million. The SME credit fundwill lend to larger SMEs and mid-size corporates and will be managed by BlueBay Asset Management. It aims to leverage €175 million of NTMA funds ultimately to provide €450 million to the market. The SME turnaround fundwill invest in underperforming businesses which are at or close to the point of insolvency but have the potential for financial and operational restructuring. This has €50 million of Government backed funding, with a total fund size of €100 million. The National Pensions Reserve Fund has also been working closely with Enterprise Ireland and the Department of the Taoiseach to assist in setting up the Innovation Fund Ireland,a €500 million Government initiative designed to attract leading international venture capital fund managers to Ireland.

The recent decisions by ACC and Danske Bank to withdraw from the Irish banking market were disappointing, following the withdrawal of Bank of Scotland (Ireland) some time ago. It is consistent with a trend evident through the course of the financial crisis of retrenchment to national borders. Banks operating in Ireland allocate significant resources to restructuring, cost savings, re-engineering processes and products, managing their legacy portfolio and dealing with customers in difficulty. Justification of such investment is clearly challenging for institutions also facing difficulties in their home markets, much in the same way it was difficult for Irish banks in difficulty to justify maintaining their operations abroad. One of our expectations from the financial crisis is that market shares in traditional banking services will become more fluid during the recovery, as the banking landscape continues to adjust to the withdrawal of foreign players, the restructuring of our incumbent banks and the increasing price transparency within financial services. We expect that over time, this will present opportunities in the market for the entry of new market participants well positioned to be confident in the future profitability of an Irish branch or subsidiary. While the current market may not be attractive to a fully diversified bank challenger in the short term, I would expect new financial services providers to enter the market on a more targeted basis, such as specialised lenders and non-bank finance providers.

This Government has been working hard to create an environment conducive to the entry of such new entrants through a number of initiatives and have been leading the debate at EU level on the mechanisms to promote alternative forms of financing for SMEs. It is important that we establish a level playing field for all banks if they will be willing to enter the Irish market and compete. In this regard, we are working to manage and minimise potential market expectations of future State support for the State owned banks which could act as a deterrent to new market entrants. We are working to establish a level playing field in the assessment of credit risk through the establishment of an industry wide credit register to allow for the appropriate measures of risk in lending, allowing incumbent and new lenders to lend with full visibility of the risk of that lending. We are working to reduce switching costs to allow customers to move between banks more easily, enhancing competition and forcing banks to work hard to retain their customers on a commercial basis. We are encouraging risk sharing partnerships to encourage new lending, such as the AIB-European Investment Bank lending initiative. We are in regular dialogue with potential market entrants as they evaluate potential opportunities in Ireland and we will be supportive of new entrants as they emerge.

There is little doubt that the recent bank exits will have an effect on the level of competition in the Irish financial sector. However, the banks are commercial entities independent of the Government; they make decisions on the conduct of their business separately to the considerations of the State and have the right to conduct their business as they consider appropriate. Nonetheless, the banks continue to be regulated by the Central Bank and they must comply with the relevant codes of conduct as they withdraw from business. This should mean that customers have sufficient notice to make alternative arrangements. The Central Bank's code of conduct on the switching of current accounts with credit institutions will apply when customers are moving current accounts.

The recent RBS review by the UK Government confirms the continuing role that Ulster Bank will have in the lending and deposit taking business for all customers here in Ireland. KBC has been expanding its network and its ambitions in Ireland. It is fair to say that it is not all bad news and that the Irish financial market does offer opportunities to institutions. This Government has also taken steps to ensure that the Irish financial market is accessible to any financial institution considering establishing in Ireland. In seeking to reduce the barriers to entry which are specific to the Irish banking market, section 149 of the Consumer Credit Act, which provides for the regulation of bank fees and charges, has been disapplied for three years in the case of new financial service providers setting up in Ireland.

Confidence in the Irish banks has been restored with reliance on eurosystem funding now a fraction of what it was at the beginning of the programme. Emergency liquidity assistance, ELA, has been removed from the system following the liquidation of IBRC. As part of the 2011 financial measures programme Irish banks were recapitalised to meet a capital requirement identified at €24 billion which was sourced from the private market, burden sharing with subordinated bondholders and from the State. The banking system has been restructured, including the merger of Allied Irish Banks with EBS and the de-leveraging planned under the financial measures programme which is due to be completed at the end of this year. The replacement of the promissory notes in IBRC with long-term Government bonds has brought significant cash flow benefits from a sovereign perspective. NAMA has maintained a strong financial position, generating considerable cash, leaving it on track to redeem €7.5 billion of bonds by the end of this year. Private capital has been introduced to the banking system, including the sale of equity in 2011 and contingent capital notes in 2013 in Bank of Ireland and the sale of Irish Life in 2013.

This Government will press ahead with further restructuring of the banking sector. In the context of the asset quality review, a preliminary assessment of the balance sheets of the prudential capital assessment review, PCAR, banks, a rigorous review is being performed incorporating an assessment of impairment provisions and a review of the appropriateness of risk weights for regulatory capital purposes. The review has the benefit of extensive sampling of loan files. In conducting the review we have had a high level of engagement with staff of the European Commission, the ECB and the IMF on progress, methodology, inputs, outputs and findings.

We will agree restructuring plans for AIB and Permanent TSB with the European Commission and these plans will be implemented along with the already agreed restructuring plan for Bank of Ireland. The legacy banking assets now housed in NAMA will be run down over time together with assets that will be transferred to it from the liquidated IBRC. We will continue our policy of exiting our banking investments in a manner that maximises the proceeds to be returned to taxpayers.

It remains a key objective of the State to return the banks to profitability as quickly as possible such that they are in a strong position to support and add value to the economy and facilitate an exit for the taxpayer. The State does not wish to be an investor in the banking sector and will seek to exit its various investments over time in a manner that delivers value for the taxpayer. We have already started this process and the financial progress made by the banks this year is encouraging and has been recognised by international investors.

As well as stabilising the banks following the crisis we have embarked on an ambitious and far-reaching overhaul of the regulation of the banking and financial services industries. Improved regulation is key to condemning the previous failings to the past and to ensuring that we can sever the toxic link between sovereigns and banks. We have done this both at home and in partnership with our EU neighbours.

This Government has undertaken a number of significant reforms since the financial crisis towards building a strengthened regulatory framework for the Irish financial services sector and to respond to the shortcomings identified in reports from Professor Patrick Honohan, Messrs Regling and Watson, the Nyberg Commission and the Moriarty tribunal which pointed out the problems to be addressed in our system of financial regulation. One of the challenges facing those who would consider investing in SMEs is the lack of information in the SMEs when compared to larger companies or indeed listed companies. The centralised credit register being established under the Credit Reporting Bill, currently on Report Stage in the Dáil, will aid decisions on the provision of credit to the SME sector and will modernise the framework for collecting and sharing this information in line with best international standards.

In 2011 the new fitness and probity regime was rolled out by the Central Bank in accordance with the provisions of the Central Bank Reform Act 2010. Following on from the Central Bank Reform Act 2010, the Central Bank (Supervision and Enforcement) Act 2013 was passed this year which enhances the Central Bank's regulatory powers, drawing on the lessons of the recent past in Ireland and abroad. It strengthens the ability of the Central Bank to impose and supervise compliance with regulatory requirements and to undertake timely prudential interventions. The Act also provides the Central Bank with greater access to information and analysis and underpins the credible enforcement of Irish financial services legislation in line with international best practice. These legislative reforms have been supplemented by a significant increase in regulatory activity by the Central Bank with a corresponding increase in staff numbers and skill levels.

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