Richard Bruton (Dublin North Central, Fine Gael)
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Question 1: To ask the Minister for Finance if his attention has been drawn to the comments made by senior bankers to the Joint Committee on Finance and the Public Service that the transfer of loans under the National Asset Management Agency would neither reduce the cost of credit nor increase the availability of credit to businesses and persons; and if he will make a statement on the matter. [45160/09]

Brian Lenihan Jnr (Dublin West, Fianna Fail)
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I am aware of the discussions that took place at the Joint Committee on Finance and the Public Service last week. My understanding is that the bankers in question expressed the view that there is not a shortage of credit available to business but that the risks taken by financial institutions must be compatible with the amount of capital they hold. Banks can currently access funds but the cost is higher than was previously the case. The banks' balance sheets will be stronger once NAMA has taken over the riskiest loans and replaced them with Government-guaranteed bonds; this will give the banks greater access to liquidity and make long-term funding cheaper.

I must point out that the value of the NAMA bonds will far exceed the incremental borrowing requirements of business and it would not be realistic to expect all of this money to be lent on. However, it is fair to assume the banks will be in a better position to lend once the riskiest loans have been removed from their balance sheets and that viable businesses should expect a fair hearing when seeking funding. I intend to issue guidelines to participating institutions to ensure this is the case and to devise appropriate appeal mechanisms.

A core Government objective is to free up lending on a commercial basis to support economic growth, and a number of actions have been taken to achieve this objective. In the context of the bank guarantee scheme and recapitalisation, the banks have made important commitments to support business lending. An independent review of credit availability was agreed in the context of the recapitalisation of AIB and Bank of Ireland. The report made a series of recommendations, including the further development of a framework for monitoring credit availability and measures to improve communications between the banks and SMEs. The report also suggests consideration of specific supports to ease the working capital requirements of SMEs and measures to help investment levels. A follow-up independent review of credit availability is currently under way and I expect it to be published shortly.

In addition, a code of conduct for business lending to small and medium-size enterprises took effect last March. As part of the recapitalisation package, AIB and Bank of Ireland confirmed their commitment to increase lending capacity to SMEs by 10% and provide an additional 30% capacity for lending to first-time buyers in 2009.

The latest statistics for credit availability, covering the period to October 2009, were published by the Central Bank on 30 November. They show that non-mortgage credit, which excludes lending to non-bank IFSC companies, was unchanged over the previous year. Headline private sector credit declined by €2.3 billion in October but this was mostly as a result of bad debt provisions for the month. Repayments were in fact marginally lower than drawdowns for the month. There was a 9% annual decline in credit outstanding to non-financial corporations in October, but three quarters of this was as a result of valuation effects.

Richard Bruton (Dublin North Central, Fine Gael)
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I thank the Minister for his reply. Does he agree with the statement he read out, that there is no shortage of credit in the economy?

Brian Lenihan Jnr (Dublin West, Fianna Fail)
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I did not read that out to the Deputy.

Richard Bruton (Dublin North Central, Fine Gael)
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He read that out as the inference that he drew from the discussions by the banks. I am asking the Minister for his opinion. Does he believe that there is no shortage of credit in the economy? That is what the banks stated and he is now repeating that. Does he agree with them when they stated that NAMA will not improve in any way the availability of credit and will not reduce in any way the cost of credit? If he agrees with those statements from the banks, what is the point of NAMA if we do not get the flow of credit? Those were the reasons the Minister advanced and the reasons we were assured this was worth doing.

Having received this appalling shock from the banks, has the Minister initiated discussions immediately with them about the availability of credit and the guidelines that he will issue, and can he give us details of the guidelines that will be put in place so that this significant undertaking by the taxpayer will not result, as the banks stated, in no improvement in credit availability and no reduction in the cost of credit?

Brian Lenihan Jnr (Dublin West, Fianna Fail)
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First, as I stated in my reply, my understanding is that the bankers in question expressed this view. I certainly did not make myself a party to their view. I do not agree with their view, as stated to the committee, and that is why the legislation confers power in the Minister for Finance to issue guidelines and to devise appropriate appeal mechanisms on the giving of credit.

The banks, as I indicated clearly in the course of the NAMA, and I reiterate here today, must ensure that there is an adequate flow of credit to the economy. There are very difficult questions to determine on whether a particular business may be viable for credit purposes or not, but I am concerned about the total volume of credit in the banking system and it is my intention to ensure that the powers conferred upon me under the legislation are exercised to that end.

The guidelines have been the subject of discussions between my officials and the relevant financial institutions. I understand the particular banker to whom Deputy Bruton is referring is the retiring chief executive of the Allied Irish Bank.

Richard Bruton (Dublin North Central, Fine Gael)
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Specifically,-----

Séamus Kirk (Louth, Ceann Comhairle)
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There is a limited time for each question.

Richard Bruton (Dublin North Central, Fine Gael)
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The Minister absorbed virtually all of the time and the Ceann Comhairle should have called a halt when he overran his time.

Brian Lenihan Jnr (Dublin West, Fianna Fail)
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The Deputy asked many questions.

Richard Bruton (Dublin North Central, Fine Gael)
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I am not objecting but I do not want to be squeezed out by the Minister's long answers.

As a result of the Minister's guidelines, will we see cheaper credit coming from the banks? That is a specific question. Will we see guidelines that will increase the flow of credit? Can the Minister give categorical commitments to the small businesses which will be listening to what he has to say? Will we have cheaper credit and more availability?

Brian Lenihan Jnr (Dublin West, Fianna Fail)
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Certainly, the purpose of the operation, as I understood it and as discussed in this House, was to ensure greater availability of credit. As to the cost of credit, that, of course, is a matter determined by financial markets. Deputy Bruton knows that perfectly well.

Richard Bruton (Dublin North Central, Fine Gael)
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Why did the Minister tell us and all his spokesmen that this new ECB money at 1.5% rate would dramatically reduce the costs of borrowing and we would see a reduction in credit costs?

Séamus Kirk (Louth, Ceann Comhairle)
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Deputy Bruton will await the answer.

Brian Lenihan Jnr (Dublin West, Fianna Fail)
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It is quite clear that the question of availability and the price of credit are distinct questions, but if credit is more available, credit is thereby cheaper as well.

Richard Bruton (Dublin North Central, Fine Gael)
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So the Minister will issue guidelines to-----

Brian Lenihan Jnr (Dublin West, Fianna Fail)
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Yes. However, I will not specify rates of interests that should be applied by financial institutions-----

Kieran O'Donnell (Limerick East, Fine Gael)
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That is not the question.

Brian Lenihan Jnr (Dublin West, Fianna Fail)
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-----and that would not be my function under the relevant legislation.

Richard Bruton (Dublin North Central, Fine Gael)
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The Minister can understand-----

Brian Lenihan Jnr (Dublin West, Fianna Fail)
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That is the reason I would be very careful about banking.

Richard Bruton (Dublin North Central, Fine Gael)
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I do not want to hold up the time, but the Minister can understand Deputies were lining up to tell us that access to 1.5% money from the ECB would see a dramatic reduction in the cost of credit. Now that is evaporating, the banks will not deliver it and the Minister will not insist upon it.

Brian Lenihan Jnr (Dublin West, Fianna Fail)
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I do not accept the premises in Deputy Bruton's question at all. The purpose of NAMA, as I made clear at the time, is to clean up the balance sheets of the banks in accordance with the best international guidance on that subject. The President has now signed the necessary legislation, consultations will take place about the appointment of the board with the Opposition leaders and it is my intention, on my legislative powers, to issue appropriate directions to the banks on credit supply in the economy.

Richard Bruton (Dublin North Central, Fine Gael)
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Live horse and one will get grass.