Joe Costello (Dublin Central, Labour) | Oireachtas source

I thank the Deputy for tabling this very important issue. It has recently been brought back into the public arena in a lively fashion by Professor Morgan Kelly.

The Government recognises that SMEs are the lifeblood of the economy and play a vital role in the continuing recovery of employment growth in our country. Government policy is focused on ensuring that all viable SMEs have access to an appropriate supply of credit from a diverse range of bank and non-bank sources. The Central Bank's statistics on SME lending provide a breakdown of outstanding debt across a number of different industries. Credit advanced to all non-financial, non-property related enterprises decreased by 2.1% over the quarter and by 5.3% over the year to end-Q4, bringing the stock of credit to €36.7 billion. An annual decline of 5.3% was also registered for end-Q4 2012.

SME credit to non-property, non-financial private-sector enterprises fell by 6.2% or €1.6 billion in the year to end-Q4 2013, to stand at €24.5 billion. This represents a decline of 3.1% or €771 million over the quarter, as these SMEs continued to repay more debt than was drawn down. SMEs accounted for 67% of all non-financial, non-property credit.

For a significant number of viable smaller and medium-sized enterprises the capacity to access financing is constrained by debt overhang, particularly in regard to property exposures. Restoring confidence and unlocking demand for the finance that is required to invest in growth, necessitates a coordinated and focused strategy for facilitating debt restructuring. Debt overhang and SME arrears are issues which impact on the ability of a SME to meet its existing commitments, as well as hindering its ability to secure additional credit which it may need. The Minister for Finance and his senior officials meet regularly with representatives of the banking sector about all aspects of the economy and this is a topic addressed in those meetings.

In June 2013, the Central Bank set quarterly institution-specific performance targets for covered banks to move distressed SME borrowers onto longer-term forbearance solutions. The targets set reflect the banks' capacity, processes and systems. The Central Bank has informed the Minister for Finance that the banks have reported that they have met their required targets to date. This perspective has been reaffirmed by both the IMF and the European Commission which report that the workout of SME arrears is progressing and that imposed targets are being met.

Irish banks are well advanced in restructuring their SME loan books. Bank of Ireland indicated in their recently published results that they had reached resolution in 90% of distressed SME cases. AIB's results indicate a resolution level of approximately 65%. It is also worth noting that defaulted loans for both banks have reduced year-on-year. Given the scale of the economic crisis that was inherited by this Government, this clearly represents considerable progress in such a vital sector of the economy.

The Central Bank's process of assessing financial institutions in their efforts to move distressed SME borrowers onto longer-term sustainable solutions is an important element in assisting SMEs to potentially transition from a distressed to a more sustainable state and will continue in 2014. Additionally, the Government's decision to fast-track legislation to allow small companies, as defined by the Companies Acts, to apply to the Circuit Court for examinership, the Irish Banking Federation's new protocol on multi-banked SME debt, and the ongoing work of the expanded Credit Review Office are all initiatives that will assist viable SMEs in addressing their debt situation. Furthermore, specific measures to promote access to finance amongst SMEs, including measures relating to debt restructuring, are a central feature of the Government's Action Plan for Jobs 2014. I should stress that the credit review process remains available to any SMEs whose credit has been reduced or withdrawn by AIB or Bank of Ireland, as well as when credit is refused by them. I would strongly advise any SME whose credit is reduced or withdrawn, to avail of the services of the Credit Review Office.

Resolving the issue of distressed SME debt in a mutually acceptable manner that affords benefits not only to parties involved in SMEs and banks but also to the wider society and economy, has been and remains a key priority for this Government.

See this speech in context