Michael McGrath (Cork South Central, Fianna Fail)
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Question 1: To ask the Minister for Finance if he is satisfied that the pillar banks are genuinely meeting the targets for lending into the domestic economy; and his views that a more meaningful measure of the banks' lending performance would be the amount of new credit actually drawn down as opposed to the amount of credit approved. [10182/12]

Brian Hayes (Dublin South West, Fine Gael)
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As indicated to the Deputy in a written reply yesterday, the Government has imposed lending targets on the two domestic pillar banks for the three calendar years, 2011 to 2013. Both banks were required to sanction lending of at least €3 billion in 2011, €3.5 billion this year and €4 billion in 2013 for new or increased credit facilities to SMEs. These followed on the initiatives taken by the previous Minister for Finance who set up lending targets for the recapitalised banks.

I can confirm to the Deputy that both banks have reported to the Minister for Finance that they have achieved their targets for 2011. This information is currently being independently assessed by the Credit Review Office and will be dealt with in the report for the end of November 2011 which is due to be published shortly.

I accept that the amounts sanctioned by the banks are but one measure of the provision of credit. However, these amounts are within the control of the banks and are therefore an appropriate target for the banks. The targets are kept under constant review in the context of levels of economic activity.

Data are available from the Central Bank website on the actual drawdown of credit. This indicates that gross new lending to non-financial SMEs by credit institutions in Ireland was €2.3 billion for the first nine months of 2011. Figures are not yet available for quarter four of last year. Drawdown is also monitored by my officials and the Credit Review Office and are reported to the EMC.

Gross new lending details the amount of new credit facilities drawn down during the quarter by SME counterparties, that is, where this credit facility was not part of the outstanding amount of credit advanced at the end of the previous quarter. Gross new lending is defined in such a way as to exclude renegotiation or restructuring of existing loans. Gross new lending does not equate to loans sanctioned over the period.

Additional information not given on the floor of the House.

The recent independent Mazars survey of SME credit found that 17% of respondents whose requests for credit were approved did not, either wholly or in part, avail of the facilities. A higher proportion of new credit facilities had not been drawn down in comparison to renewed facilities. The most frequent reasons cited for not availing of approved credit continue to be "not needed at present time", which was cited by 80% of respondents. Given that the decision to draw down approved credit rests in the hands of the borrower, it would not be appropriate at this stage to impose targets for actual draw down on the banks. It remains an important factor to monitor.

Michael McGrath (Cork South Central, Fianna Fail)
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I thank the Minister of State for his response. What we all want to see is new credit circulating in the economy. That is the reason I tabled this question. The real test is the amount of new credit that is drawn down. I take the Minister of State's point that the banks can only control the amount of credit they sanction but often sanctioning of new credit by the banks comes with such onerous terms and conditions that, in effect, it constitutes a refusal of credit and, in many cases, it is not a viable option for the customer to drawn it down. Other issues are the interest rate charged and the types of collateral requirements being imposed by the banks. Will the Minister of State re-examine this issue and as well as reporting the amount of credit that is sanctioned by the banks, will he report the amount of new credit which is drawn down? He partially answered a question when he referred to the amount of new gross credit of €2.3 billion in the first nine months of last year. That compares to the two pillar banks telling the Minister of State that they sanctioned €6 billion of new credit throughout the calendar year 2011. A much more meaningful measure is the amount of credit drawn down and put into circulation in the economy. I ask the Minister of State to re-examine that issue.

Brian Hayes (Dublin South West, Fine Gael)
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I agree with the Deputy that this is the key test of whether we can get the economy moving again, namely, getting credit out to SMEs in particular. The climate has been challenging given the recent difficulties in the economy. It is a chicken and egg situation. We need more applications to come forward and a better processing regime by the banks.

Some of the advances we have seen during the course of recent months are important and we have recognised that there is problem here for small businesses in particular, but it can be overcome. We now have a common application form across all of the banking sector and the Internet can be used to ensure that applications are made in the most technological advanced way possible. Also, the banks have been instructed to provide training, particularly for SMEs, and such training is important in drawing down the funds required.

This is an issue that the Government has taken very seriously, as the Deputy knows. The Economic Management Council meets on a regular basis with the banks. Yesterday Department of Finance officials had the banks in with them. The Deputy will be aware of the new revamped banking unit in the Department of Finance, which is involved in bilateral discussions with the banks on a weekly and monthly basis to make sure that we can get credit out there.

In the last quarter of last year, we saw some significant improvement in terms of sanctioning. It all very well to say to a small business that the credit is there for it but drawing it down is the key test. I agree fully with the Deputy on that. I reassure him and the House that this is a matter of absolute priority for the Government. Significant progress has been made and we will continue in that vein.

Michael McGrath (Cork South Central, Fianna Fail)
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I thank the Minister of State for his reply. I am glad he acknowledged that the key test is the draw down of new credit by businesses in the country. I am concerned that we are still witnessing a situation of revolving credit where banks are bundling existing credit facilities such as overdrafts and company credit cards that businesses have, repackaging them as term loans and reporting them to the Government as new credit which they are not. They are recycled credit.

When this issue is being reported upon, I would like the Minister of State to note the figures from the Central Bank and compare the amount of new credit drawn down and put into circulation in the economy with what the banks tell him they have sanctioned. Only then can we get a real handle and picture of the amount of credit that is being put into circulation to allow existing businesses to continue and new investments to be created.

Brian Hayes (Dublin South West, Fine Gael)
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I welcome the Deputy's constructive remarks. This is a challenge particularly as we proceed through 2012. The Taoiseach has rightly pointed out that this is the year when the investment jobs agenda is the crucial test for us all to get people back to work. That will not happen unless we can provide funds into the real economy.

It is important to state also that the whole of Government is taking this issue very seriously. One of the issues we have identified is the need for equity in many of these businesses. Credit is one thing but the only way one will draw it down is if one has capital. Part of the problem is that micro-businesses in particular do not have access to the 10% or 20% required up-front to draw down the amount. That is something on which we are very focused, particularly the new micro-financing fund which was established by the Minister, Deputy Bruton, in consultation and in co-operation with the Department of Finance. The key test is to get the capital in place in order that these funds can be there for investment.

Many businesses in the middle of an economic turmoil spend much of their time deleveraging, writing off debt, paying down debt and not seeing investment. This climate will change when we ensure that lending gets out into the real economy.

The independent Mazars report, of which the Deputy will be aware, made the net point last year in terms of last year's lending that when the pending applications are excluded, the approval rate is about 70% at present. We need to get money out into the economy but we also need to have applications coming through. We also need to use the Credit Review Office as a means of making sure that money gets out into the economy.