Ray Butler (Meath West, Fine Gael)
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I wish to raise the matter of high loan refusal rates and the detrimental effects they are having on small and medium enterprises, SMEs, and their vital recovery. From speaking to local business people in my constituency who are struggling to survive and pay back loans, this issue needs to be addressed in real terms. It is suggested banks are putting already pressurised businesses into further decline by withdrawing their overdraft facilities and restructuring them into term loans. This means that small businesses are now operating outside the original terms, which leads to their credit rating disappearing for anything up to six years and access to necessary funding drying up completely. Banks, on the other hand, are stating their current mechanisms for restructuring loans are helping SMEs to continue to operate, although I argue that this is clearly not the case.

Evidence appears in a recent survey carried out by the independent organisation working in support of the Irish small and medium enterprises, ISME, sector which confirms in its latest quarterly bank watch survey that the refusal rate of loans to SMEs has risen to 54% after slight improvements in the previous two quarters. It also indicates that 37% of respondents to the survey had requested additional or new bank facilities in the past three months, an increase of 6% on the figure for the same quarter in 2011. In addition, around 80% of businesses which had applied for funding outlined that banks were making it more troublesome for them to access the funding they needed to remain afloat.

In the light of the volume of SMEs in real financial trouble, the entire credit rating system needs to be reviewed if they are to be given proper opportunities and have prospects for recovery. It has been widely reported that there is a high percentage of SMEs with restructured loans on bank books and no access to further loan or overdraft facilities from banks. It is certainly time to reduce the period of credit blacklisting from six years to two as a means to improve the position for all small and medium enterprises. This would allow them time to repay their existing loans, while providing access to cash injections, if necessary, within an earlier timeframe.

We must carefully assess and address this matter by taking definitive action before it becomes too late for many SMEs which are doing their very best to keep the wolves from the door and those of their employees also. If we cannot offer them real support in these unprecedented economically turbulent times, how can we really expect the sector to survive, much less thrive?

Brian Hayes (Dublin South West, Fine Gael)
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I thank the Deputy for raising this most important issue of credit availability for small and medium enterprises. One of the key priorities of the programme for Government is to ensure an adequate pool of credit is available to fund SMEs in the real economy during the restructuring and downsizing programme of the banks. The Government has introduced a number of policy tools to achieve this objective. For example, the banking system restructuring plan creates capacity for the two pillar banks - Bank of Ireland and AIB - to provide for lending in excess of €30 billion from 2011 to 2013. SME and new mortgage lending for these banks is expected to be in the range of €16 billion to €20 billion during this period. This lending capacity is incorporated into the banks' deleveraging plans which allow for the repayment of Central Bank funding through asset run-off and disposals during the period.

The Government has imposed lending targets on the two domestic pillar banks for the three calendar years from 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 for SMEs. They achieved their lending targets for 2011.

In addition to the lending targets imposed on the banks, the pillar banks are required to submit their lending plans to the Department of Finance and the Credit Review Office at the beginning of each year, outlining how they intend to achieve their lending targets. They also meet the Department and the Credit Review Office on a quarterly basis to discuss progress. The Credit Review Office reviews decisions by the pillar banks to refuse, reduce or withdraw credit facilities from €1,000 up to €500,000. The office is overturning 60% of the decisions referred to it, supplying €6.9 million of credit and supporting 683 jobs in the SME sector. I appeal to SMEs that have been refused credit by banks to avail of the services of the CRO. That is what it is there for and it clearly has a track record of making decisions in favour of SMEs where a negative decision has been made by the banks.

In November 2011, the Government committed to completing an annual action plan for jobs that would involve the whole of Government focusing on what part it and its agencies could play in protecting or creating jobs. A key component of the plan is to ensure that viable SMEs can access credit and the plan introduces a number of important measures to achieve this objective.

The temporary partial credit guarantee scheme aims to provide credit to job-creating SMEs that currently struggle to get finance from the banks. It is intended to address market failure affecting commercially viable businesses in two specific situations, namely, where businesses have insufficient collateral and where businesses operate in sectors with which the banks are not familiar. In addition, a micro-finance fund to provide loans to small businesses is also being developed within the Department of Jobs, Enterprise and Innovation.

The first meeting of the reinstated SME credit consultation committee took place on Tuesday, 12 June. The role of this committee is to provide a forum where stakeholders can communicate and interact regarding difficulties in respect of credit.

I should also note yesterday's launch by the Minister for Finance of Silicon Valley Bank's commitment, in collaboration with the National Pensions Reserve Fund, of a minimum of US$100 million in new lending to fast-growing Irish companies in the high tech technology and innovation sector.

In November 2011 Mazars published a report commissioned by the Department of Finance outlining the situation in credit demand by SMEs in the period April to September 2011. This was an extensive survey of firms across the SME sector conducted by a professional market survey company. Of the 1,500 SMEs surveyed, only 36% requested bank credit in the period and, of these credit applications, some 70% were approved or partially approved when pending applications were excluded. As I mentioned earlier, the Credit Review Office offers an important mechanism separate from the banks' internal appeals procedures for SMEs to have the decision of the bank reviewed. The Government would encourage more active use of the office by those companies that feel aggrieved at the decision of the banks on their credit applications.

It is vital that the banks continue to make credit available to support economic recovery. However, it is not in the interest of the banks, businesses or the economy for finance to be provided unless the business is viable and has the capacity to meet the interest payments and repay the sum borrowed.

Ray Butler (Meath West, Fine Gael)
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I thank the Minister for State for his reply. I welcome the fact the Credit Review Office has overturned 60% of decisions. Many SMEs in my constituency that have been dealing with the banks and that have restructured their loans find it difficult to deal with the banks after restructuring. They feel they have been blacklisted and there is no point in them going to the Credit Review Office. That is a problem and the entire credit rating system should be examined. If we are to move forward, we do not need to place debt upon debt. Many of these businesses are doing okay but they need some cash flow. When an overdraft is converted into a long-term loan to a business, the business is being starved of cash flow. Something should be done to ensure these people have some sort of overdraft. I welcome the overturning of 60% of decisions but we must examine the credit rating system because we are in different times and it is now outdated.

Brian Hayes (Dublin South West, Fine Gael)
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The Deputy makes a valid point. It is one question to look at how much money is being lent into the real economy and how much is being drawn down but it is entirely separate to look at the credit rating system that surrounds those businesses that have experienced difficult times. If there is an effective blacklisting or negative mark against those businesses that have gone through restructuring, it is a very important issue we must examine.

The Minister of State, Deputy Perry, and the Secretary General of the Department of Finance, has completed seven regional meetings around the country. Those meetings were with stakeholders, the very businesses to which he referred in his speech. A report will be published shortly and the issue to which he referred in respect of credit ratings was raised at those meetings. If additional action can be taken by Government, we will do that.

I also understand that the Mazars report for the next six months will be also issued shortly. It did the initial work in this area and produced the more relevant data because of the numbers responding to the survey. On the specific issues to which the Deputy referred - the credit rating system - we will have two reports, one from Mazars and one from the Department of Finance, that will consider this question, along with other issues.

I appeal again that where businesses have been refused credit and an opportunity to draw down funds from a bank, the issue should be taken up with the Credit Review Office, which has overturned 60% of decisions that were taken. That shows the Credit Review Office is on the side of the borrower and the person who is attempting to restructure his business and secure investment so the economy will get back on its feet. That message should be highlighted by this House and I thank the Deputy for raising it.