Dáil debates
Tuesday, 19 July 2011
Priority Questions
SME Sector
3:00 pm
Willie O'Dea (Limerick City, Fianna Fail)
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Question 22: To ask the Minister for Jobs, Enterprise and Innovation if he is satisfied that the arrangements in place to provide credit to businesses, particularly small and medium enterprises, are adequate; and, if not, the measures he proposes to take. [21222/11]
John Perry (Sligo-North Leitrim, Fine Gael)
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The availability of credit to viable businesses is a recurring challenge that has hampered new or expanding firms from developing new products and markets, and thereby protecting or creating jobs. This is a challenge the Government is determined to address.
With my departmental officials, I continue to work closely with our colleagues in the Department of Finance to ensure that the interests of businesses are central to Government actions in the banking sector. The recently announced plans by my colleague, the Minister for Finance, to restructure and recapitalise the banking system is the principal response to this challenge. These plans are designed to secure an adequate flow of credit into the economy to support economic recovery, even as the banking system is down-sized.
As the Minister for Finance has confirmed, the banking system restructuring plan creates capacity for the two pillar banks, Bank of Ireland and AIB, to provide lending in excess of €30 billion in the next three years. SME and new mortgage lending for these banks is expected to be in the range of €16 billion to €20 billion over this period.
In each bank, a team of senior managers will be dedicated to the task of ensuring that lending continues to grow to support economic growth. This lending capacity is incorporated into the banks' de-leveraging plans which allow for the repayment of Central Bank funding through asset run-off and disposals over the period to 2013.
Both pillar banks regularly provide the Department of Finance with monthly figures on balance-sheet volumes, sanctioned facilities, and geographic and industrial breakdowns of their SME lending, and for sanctions and drawdowns by SMEs. The data is monitored to ensure that the banks are compliant with the terms of the Government recapitalisation as it relates to the provision of credit for SMEs.
As part of the jobs initiative and in accordance with the commitment in the programme for Government, I am working towards the introduction of a targeted, temporary partial credit guarantee scheme, which will be in operation later in the year. Work is also under way on the establishment of a microfinance fund to provide loans of up to €25,000 to micro-enterprises employing up to ten persons for start-ups and expansions.
Businesses having difficulty with credit refusals can use the services of the Credit Review Office. With effect from 9 July, the limit for loan applications that can be reviewed by the Credit Review Office has been increased from €250,000 to €500,000.
Additional information not provided on the floor of the House.
As a further assistance to improving the cash flow of businesses, all Government bodies - excluding commercial semi-State bodies - are now required from 1 July 2011, to pay suppliers within 15 days of receipt of a valid invoice. Given that the public sector enters contracts with suppliers worth €15 billion each year, the importance of such a policy for all the companies that do business with the State is clear. These actions already taken will enable businesses to access credit and benefit from growth in our economic activity. I am committed to the provision of an adequate supply of credit to viable businesses and I will continue to ensure that our heavily supported banking system plays its role in supporting our enterprise sector.
Willie O'Dea (Limerick City, Fianna Fail)
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Did I understand the Minister of State to say that as a result of restructuring, the banks are now providing credit to businesses, particularly small businesses? The Minister of State must realise that there is a credit famine out there. The banks are not lending to businesses, particularly small businesses. The Credit Review Office is effectively a toothless tiger; it is just as good as the Press Council - useless. That is the reality, even though we set it up ourselves. The Government has various proposals concerning micro-funding for lending and taking equity in small businesses, and a credit guarantee scheme. Can the Minister of State say when we can expect both those to be in operation? The Government has been making promises about them for the past four months.
John Perry (Sligo-North Leitrim, Fine Gael)
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I agree with the Deputy in regard to the viability of small companies. In Mr. Trethowan's defence, his office's monthly reports are clearly bench-marked on lending by the banks, which have received €3 billion each. If the Deputy studied the reports, he would see it is quite apparent that the money is being loaned out.
John Perry (Sligo-North Leitrim, Fine Gael)
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As regards the 250,000 small companies, however, spending in the domestic economy has dropped considerably. Many businesses that were viable are unfortunately not so now, which is the difficulty at the moment.
The temporary loan guarantee scheme has been designed to be rolled out and we are working decisively on it. We feel it is very important and will take some of the risk. It will not be a substitute for bank lending, but it will guarantee some sectors of the economy the possibility of getting money. It will certainly be rolled out by budget time.
The micro-finance fund is critically important as well and provides up to €25,000 for small and medium enterprises. From my own experience, I agree with the Deputy that it is disappointing that there is evidence to indicate that smaller companies are not getting loans.
John Perry (Sligo-North Leitrim, Fine Gael)
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It is important that the State has invested heavily in the two pillar banks and is obliged to do so.
Willie O'Dea (Limerick City, Fianna Fail)
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The Minister of State suggests that I should read the reports. I have read them in some detail. I would like to know if the Minister of State agrees with my conclusion from having read the reports, which is that there seems to be something of a balance-sheet paradox. The actual lending to SMEs has dropped quite considerably because much of the money being loaned out, as per the balance sheet, is simply replacing or rescheduling loans that are already there. Many of these loans are being paid on an interest-only basis. They are important because they are helping people to survive a difficult period, but they are not increasing the volume of lending to small businesses.
On the credit guarantee scheme, am I correct in saying that the amount, which the Minister mentioned in committee last week, is a guarantee of about €400 million? The Minister of State says he hopes to have that in place at or before budget time, which is next December.
John Perry (Sligo-North Leitrim, Fine Gael)
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By budget time, yes.
Willie O'Dea (Limerick City, Fianna Fail)
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Has the Government factored in an annual figure for how much this will cost the State?
John Perry (Sligo-North Leitrim, Fine Gael)
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The cost will be offset by the benefits to the State. The final cost has not been fully determined, but it will certainly be value for money because the most important benefit is getting people back to work. From the level of inquiries to my Department about the lack of funding to small companies, I entirely agree with the Deputy on the role of the banks, which is a huge issue at the moment. I assure the Deputy that I will rigorously bench-mark the two pillar banks to ensure that money is loaned out.
With regard to the efficacy of the €400 million fund, it could potentially create 8,500 jobs. It is absolutely essential that we deliver it instantly. I agree that, unfortunately, small companies are not currently getting the essential finance required to generate confidence and credit in the economy. It is a point I will deal with.