Damien English (Meath West, Fine Gael) | Oireachtas source

I thank Deputy Penrose for raising this issue and giving us a chance to make a statement on it. I apologise that the Minister for Finance, Deputy Donohoe, could not make it this evening. I am happy to take this matter on his behalf and pass on the views of the Department in answer to the Deputy's question. I will pass on the Deputy's concerns to the Minister as well.

As Deputy Penrose mentioned, the Department of Finance and the Department of Rural and Community Development were tasked with fulfilling a programme for Government commitment to thoroughly investigate the German Sparkassen model for the development of local public banks that operate in well defined regions.

Both Departments prepared a report of the findings of their investigation which involved an analysis of the Sparkassen model and the local public banking in Ireland report was published in the summer of 2018. There was considerable analysis undertaken and careful consideration of a proposal for how the German Sparkassen model of local public banking might have been implemented in Ireland. Ultimately, the report found that there is not a compelling case for the State to establish a new local public banking system in Ireland in the proposed form. The cost to the Exchequer of the proposed new model was estimated at a minimum of €170 million.

However, the Department wants to be very clear that there is no impediment to any interested parties pursuing the establishment of a system of local public banks without the involvement of Exchequer funding or State ownership. From my own personal interest in this topic, I originally thought the campaign and movement needed permission to be able to establish the public banking system. I met a local man who we all know, Mr. Noel Kinahan, who is doing great work in pursuing this area. My understanding was that the campaign was for a licence to be able to do this and not necessarily to have State investment. The report has said it is not necessary for the State to invest in this model but it can still happen by itself.

Notwithstanding the conclusion of the local public banking report, a commitment was included in the report to carry out an independent evaluation of local community banking to establish whether its objectives, including financial inclusion and rural and regional development, could be furthered by other means in Ireland. Following a procurement process, the contract was awarded to Indecon earlier this year and work on the independent evaluation is well under way. The report is expected to be completed later this year and will be a useful document.

The Government is committed to supporting access to finance by indigenous small and medium enterprises, SMEs, as well as regional and rural economic growth. A range of supports and schemes have been put in place over the past few years, including a €300 million Brexit loan scheme launched in March 2018. The scheme provides working capital loans of up to three years to Irish SMEs to enable them to adapt and innovate in response to the challenges posed by Brexit. More recently, a future growth loan scheme has been developed to provide long-term investment finance of eight to ten years to help Irish businesses invest strategically in a post-Brexit environment. The scheme was launched on 27 March and, since yesterday, SMEs are able to apply for loan eligibility through the Strategic Banking Corporation of Ireland, SBCI.

As well as the Brexit loan scheme and the future growth loan scheme, there are other Government measures in place to support the financing needs of SMEs. They include the credit guarantee scheme, the micro-enterprise loan fund, local enterprise offices and the credit review office. The matter refers to the difficulties in lending to SMEs and in that regard it is worth noting the finding from the most recent Department of Finance SME credit demand survey which highlighted that when pending applications are excluded, 86% of credit applications to banks were approved or partially approved. The main stated reason for credit declines was a failure to meet the bank’s lending criteria, particularly in terms of account performance and history, followed by the applicant’s ability to repay.

It is also worth noting the consistently low demand for credit from Irish small businesses indicated by SME credit demand survey. The demand for bank lending by Irish SMEs has fallen from 40% in the initial survey in 2011 to the current level of 20% in the most recent survey, covering the period April 2018 to September 2018. Many Irish businesses are doing well and appear to be using their own funds instead of external financing to meet their needs. The uncertainty surrounding Brexit may also be contributing towards the subdued demand for banking lending.

Additionally, it is worth noting that only 1% of SMEs that did not seek credit stated it was due to it being too expensive to borrow. The main stated reason for not having sought credit in the past six months is a simple lack of credit requirements, a reason cited by 89% of businesses not seeking credit.

That is a report that was done independently of ourselves but, naturally, we all get different feedback and I am happy to hear the concerns and issues of Deputy Penrose and I will pass them on to the Minister for Finance.

See this speech in context