Billy Kelleher (Cork North Central, Fianna Fail) | Oireachtas source

I welcome the opportunity to speak on this Private Members' motion and compliment Deputy Michael McGrath on tabling it and having this important and timely discussion. It is taking place against the backdrop of a credit union having run into major difficulties recently and the problems that exist in accessing credit. We have had a debate for a number of years on how to get credit flowing in a sustainable way into the broader economy, not only to small and medium sized businesses, which are the lifeblood of economic activity, but to people who wish to take out a mortgage to purchase a home, and on the difficulties people have in accessing credit for the purchase of a home or for small and medium sized business investment and sustainability.

There is no doubt that our banking system is very impaired. One need only consider the recent withdrawal of banks from Ireland and the revocation of their banking licences. It sends out a very strong message that we are in a perilous state when it comes to competitive activity in the banking sector.

The Government's policy is the pillar bank system with AIB and Bank of Ireland, and the role envisaged for Permanent TSB. It is critically important that we have competition not only in the area of basic charges to customers for handling loans, providing overdrafts, credit cards and so on, but in terms of the competition being dynamic with regard to innovation in how they provide funding to small and medium sized businesses and to people who may want to purchase a home. We can no longer pretend that there is improvement. Of course we want to see the two pillar banks achieve the success that they have been having to date in that their share prices have risen a small bit and there is a small degree of confidence flowing into the economy, all of which is welcome. However, when there is potential growth in an economy there is also a need for credit to fund that growth. We are not talking about bubbles but about a sustainable economic system whereby credit is available to small and medium sized businesses to enable them to invest and reinvest. That is not possible at present.

While the pillar banks are advertising that they are open for business, supporting enterprise and available to provide mortgage facilities for people who want to purchase a family home, that is not evident on the ground. Any cursory look at the statistics with regard to access to credit would show that there is still a deficit of credit available to sustainable business models.

Having learned from experience, banks are trying to extend their capabilities in terms of their personnel. Enterprise Ireland has worked with the two pillar banks on training personnel to be able to access a business plan presented by a small or medium sized business or a company in terms of its sustainability, cashflow, balance sheet and projections as to what it can achieve over a number of years. However, there is a dearth of experienced personnel in the banks to access that. There is still a latent hangover of business plans being assessed on one thing only, namely, its property as opposed to its business model. Even though banking personnel have been moved from A to B and C to D, there is a huge difficulty in our banking system, particularly in AIB and Bank of Ireland, in that area. I urge that this issue be brought to the attention of the banks. They say that they are open for business but the only way they can be there for business is if there have experienced personnel who can assess a business proposal, examine its need for credit and assess its viability, as opposed the current position where it seems that if one is unsure about a proposal or there is a lack of experience in terms of assessing it, the easiest thing to do is to refuse the credit in the first place.

The motion refers to the small and medium sized business sector. The difficulties people have in accessing credit to purchase a home is an indication of the difficulties the banks are in. It is not only anecdotal evidence as it is clear that families are having difficulties in accessing mortgages. What the banks are doing is trying to repair their impaired balance sheets. They are fighting for their lives. AIB wants to get out of State ownership and Bank of Ireland wants to unshackle its connection with the State; they want to return to a position of independence in terms of ownership in order that they will not have to take any more direction from the Government.

In the meantime, when they are trying to repair their damaged balance sheets they are sucking the lifeblood out of the economy. They are required to retain very high capital reserves for lending which gives them a disincentive to lend in the first place. We went from requiring tier one capital of 3% up to 10% or 12% at this stage. That policy is very welcome and is being enforced by the Financial Regulator but it damages the ability of the banks to provide credit because of the capital ratios they are required to retain.

I ask the Government to consider the proposal in the motion. We are only calling for what has been committed to in the programme for Government. We recommend that the Government should carry out its commitment in the programme for Government to establish an access to credit for small and medium businesses by establishing a business bank. To date this commitment has not been honoured. Deputies on all sides of the House agree that we must have a sustainable growth path over the next number of years so that small and medium businesses can access credit if they have a sustainable business plan which stands up to scrutiny. That will force the pillar banks to put their houses in order with regard to providing credit.

The motion calls on the Central Bank to examine the competitive state of the Irish banking sector. It asks for action to encourage non-domestic banks to establish a retail presence in Ireland. It asks for verification that the State-supported banks are fully meeting lending targets. I was on that side of the House for some time and we know and appreciate the difficulties faced by any Government and that there is no quick-fix solution. When a bank is fighting for its survival its only loyalty is to its shareholders and its only interest is to repair its balance sheet. However, there is a broader remit because the banks have received so much State support under the bank guarantee scheme and because they are partially owned by the State. There is a social obligation on banks. The Credit Review Office was established to assess whether banks were meeting their lending criteria as laid down by the guarantee. There needs to be an examination of how banks are performing and meeting the commitments which they are obliged to meet with regard to lending to small and medium businesses and in the area of mortgages, in case that issue is forgotten.

The motion calls for action to improve non-banking sources of funding for the SME sector and for improved regulation of licensed moneylenders in order to protect consumer interests and measures to tackle illegal moneylenders. Credit unions were established in communities throughout the country many years ago in order to allow people to access credit and to prise them away from the grasp of moneylenders, to allow short-term borrowing at affordable rates to alleviate cash flow problems which families encounter from time to time. I accept the credit union movement may have moved away from that policy to a certain extent but the licensing of moneylenders and the inspection of money lending practices must be a priority because many citizens could find themselves in a parlous state if money lending practices are not controlled.

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