Micheál Martin (Cork South Central, Fianna Fail)
Link to this: Individually | In context | Oireachtas source

To ask the Minister for Finance if he has sought to review with the Troika the rate at which banks are required to de-leverage such that lending to the domestic economy can be supported; and if he will make a statement on the matter. [14034/13]

Michael Noonan (Limerick City, Fine Gael)
Link to this: Individually | In context | Oireachtas source

As the Deputy will be aware, the Irish authorities have taken a wide range of restructuring measures to tackle the banking crisis over the past three years. The deleveraging programme set out in the financial measures programme in 2011 was an integral part of this process. By reducing the size of the banking system, deleveraging was intended to reduce bank reliance on wholesale and central bank funding and so help to create a clean, appropriately sized banking system able to provide new lending necessary to support economic activity in Ireland.

Specifically, the deleveraging plans agreed under the financial measures programme aimed to put in place credible, workable plans for the disposal and run-off of non-core assets to enable each bank to achieve a target loan to deposit ratio of 122.5% by the end of 2013. In order to protect the domestic economy, deleveraging was to focus on non-core assets consisting largely of international loan assets across a number of portfolios in the UK, the US and Europe and not required to service the retail, SME and corporate banking requirements of the Irish economy. The deleveraging plans also sought to pace asset disposals appropriately, in order to avoid excessive capital losses.

To date significant progress has been made. As outlined in the recently published Department of Finance annual review, both Bank of Ireland and AIB are currently on track to achieve their year-end 2013 deleveraging targets. PTSB’s programme has been largely postponed pending the EC’s decision on its restructuring plan. Total deleveraging achieved across AIB, Bank of Ireland and PTSB was €57 billion as at 31 December 2012. Deleveraging to date has been achieved within assumed discounts avoiding fire sales as planned. Remaining deleveraging is anticipated to be achieved through run-down and work-out of non-core loan books over time. I should stress that the asset disposal programmes at AIB and Bank of Ireland have largely completed.

Additional information not given on the floor of the House

Given the progress made to date by AIB and Bank of Ireland, the fact that the majority of non-core assets are not Irish assets and the fact that their asset disposal programmes have largely completed, I am comfortable that the completion of these plans is not constraining the amount of new lending available in the market.

In order to further minimise risks to domestic lending arising from the bank’s deleveraging programmes, further refinements to the deleveraging framework were agreed with the troika towards the end of last year. It was considered that the loan to deposit ratio metric had served its purpose in terms of driving non-core deleveraging and remaining deleveraging would be best achieved by a specific quantum of non-core deleverage requirement. This resulted in the banks’ deleveraging being assessed based on the existing nominal targets for disposal and run-off of non-core assets in line with the 2011 financial measures programme. This ensures excessive deleveraging of core portfolios is avoided so as not to impair the flow of credit to the domestic economy and also removed any unintended distortion to the deposit market.

Michael McGrath (Cork South Central, Fianna Fail)
Link to this: Individually | In context | Oireachtas source

The essence of this question is credit. As we know, the banks are deleveraging through the sale of their portfolios of loan assets, mainly abroad, and also by not giving out new credit. Last year, the Government set targets for credit given by the pillar banks to the SME sector. The banks say, and the Credit Review Office confirms, that they gave out €8 billion of lending last year to SMEs of which €2.5 billion was new lending to the SME sector. That same sector repaid €4.5 billion to the banks over the course of last year. Therefore, the amount of credit in circulation among SMEs last year contracted by €2 billion. Part of the reason for that, and for the banks' lack of risk appetite, is that they are striving to meet targets. They are rebuilding their balance sheets. That needs to happen. We all acknowledge that deleveraging is a requirement and that the banks need to shrink their exposure. It is, however, having an impact on the economy. The overall GDP figure for last year was quite positive, at almost 1%. The third quarter, Q3, figure showed negative growth and the fourth quarter, Q4, was absolutely flat. Part of the reason the economy is not doing better is that credit is still the main issue.

The banks are ahead of target in achieving these requirements. If there is any headroom and if the advice from the Central Bank is that easing off on achieving those targets so quickly could result in additional credit becoming available for the economy, then that is something we should look at. That is why I make this proposal.

Michael Noonan (Limerick City, Fine Gael)
Link to this: Individually | In context | Oireachtas source

The Government puts lending targets on the banks. For 2011 and 2012, they achieved their targets. As the Deputy says, the SME sector are also repaying loans. Both sides of the balance sheet must be taken into account.

There is a general problem with credit in the domestic economy but some of it stems from lack of demand for credit rather than lack of supply. Until confidence rebuilds we will not get stronger demand. It is improving, however. The figures to which the Deputy refers, which were published today, show the domestic economy stabilised in the last two quarters of last year. The domestic economy is beginning to grow, as well as the exporting sector. I hope this will be a better year.

We must also look at non-bank sources of credit. Approximately 65% of dollar spend in the United States economy, for example, comes from the markets in one way or another and not from bank lending. We have to move in that direction in Europe. The theme I have selected for the informal ECOFIN meeting which takes place in Dublin in April is non-bank credit, to see if we can get more credit into the economy from sources other than the banks. Already, we are making some progress on that through the European Investment Bank and the particular funds that have been put in place on a joint partnership basis by the National Pensions Reserve Fund and so on.

Michael McGrath (Cork South Central, Fianna Fail)
Link to this: Individually | In context | Oireachtas source

The problem at present is that households are trying to pay back debt, the Government is trying to reduce its overall indebtedness and the banks are trying to reduce theirs. The combination of all of that makes economic recovery much more difficult.

I accept there are a number of reasons that credit is not flowing as we would like it to. Part of it is that the banks do not have an appetite for risk and that demand is weak in an economy that is weak. However, I ask the Minister to go back and look at the definition of the targets for the banks and at the measurement of those targets. Last year, only €2.5 billion of the €8 billion credit was new lending and the same SME sector paid back €4.5 billion, so the total stock of credit available to SMEs shrank by €2 billion. Those are the hard facts, confirmed by the Credit Review Office.

Something is wrong and I am trying to get under the skin of what is going wrong and why credit is not being made available in the way we would like it to be. Deleveraging is one issue, but I ask the Minister to go back and look at the targets.

Tommy Broughan (Dublin North East, Labour)
Link to this: Individually | In context | Oireachtas source

On the ending of the blanket bank guarantee, did the Government impose conditions on banks in relation to lending to SMEs? Was any quid pro quo required from the savings that would accrue to banks' balance sheets?

Has the Minister a view on the extraordinary annual salary of nearly €1 million paid to the chief executive of Bank of Ireland, which was recently published? He also receives various emoluments. Large salaries are also being paid to the Governor of the Central Bank, to other directors and to his aide-de-camp at the bank. Is it not extraordinary that a bank in which we still have a significant share and which depends on us for its stability should reward its senior staff in such a reckless and shameful fashion, given the constraints on the public sector, small businesses and families?

Pádraig Mac Lochlainn (Donegal North East, Sinn Fein)
Link to this: Individually | In context | Oireachtas source

We accept that there needed to be some deleveraging in the banks' loan-to-deposit ratios, but the speed is impacting on the ability to get credit into the real economy. We know the State's unemployment figures.

Of the €3.5 billion in lending that AIB committed to last year, €600 million was new while the rest was refinancing. We are facing a real challenge. Has the Minister considered how to slow down the deleveraging process so that it assists the economy?

Mick Wallace (Wexford, Independent)
Link to this: Individually | In context | Oireachtas source

The Minister referred to markets supplying 65% of lending in America but that is not an option for an economy of our scale. Markets deal with much larger quantities and would not be interested in the small stuff.

We are all aware that much of the banks' recent lending has been in the form of refinancing rather than anything else. From personal experience, getting money out of a bank is like trying to pull teeth from a hen. Many small businesses have approached me about this matter. Irrespective of how good their business prospects, they are struggling to get any finance from the banks. The Government should ring-fence money for small businesses and control its distribution.

Michael Noonan (Limerick City, Fine Gael)
Link to this: Individually | In context | Oireachtas source

The best I can say is that it is a work in progress. The deleveraging is almost complete. If deleveraging was putting a brake on lending, that brake is no longer there to any extent.

We set targets for the banks. In 2011, €3 billion was sanctioned. In 2012, it was €3.5 billion. There is a €4 billion target for 2013. This is in the form of new or increased credit facilities to small to medium-sized enterprises, SMEs. Both banks have reported that they achieved their targets in 2011 and 2012. The Credit Review Office, CRO, has supported this contention. Lending targets are imposed on the banks. They must submit their lending plans to the Department of Finance and to the CRO at the beginning of each year. They must outline how they intend to achieve their lending targets. They also meet with the Department and the CRO on a quarterly basis to discuss progress. The monthly management meetings with the banks also provide a forum for the issue of SME lending to be raised by Departments. We keep the situation under constant review. I will re-examine it but we examine it every two weeks and certainly every month.

Deputy Broughan asked about the targets. They were set down and I have supplied them to him. He also asked about salaries at Bank of Ireland. When Deputy Pearse Doherty asked about this matter, we went through it in considerable detail and I do not need to go through it again.

Regarding the speed of deleveraging, the banks were ahead of target for part of the year, but they are on track now and have gone below the 122.5% level. I do not have the exact percentages, but I am sure that we will have an opportunity to supply them to Deputy Mac Lochlainn again.

There is already a great deal of market-based lending. For example, Silicon Valley Bank is operating in Ireland and has put $100 million on the table for small IT companies for start-up purposes. The National Pensions Reserve Fund, NPRF, has entered into bilateral arrangements with foreign investment funds that are specifically geared towards SMEs. Three funds of approximately €200 million each are operating. The Department of Jobs, Enterprise and Innovation is running a micro-finance scheme using a pool of money. The situation is improving and we will keep working at it, but I would like to-----

Mick Wallace (Wexford, Independent)
Link to this: Individually | In context | Oireachtas source

Give me its number.