Dáil debates

Tuesday, 12 November 2013

Access to Credit: Motion [Private Members]

 

8:30 pm

Photo of Dara CallearyDara Calleary (Mayo, Fianna Fail)
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I move:

That Dáil Éireann:

notes that:

— accessing credit remains very difficult for businesses and personal customers throughout the country;

— the continuing decline in the number of banks operating in the Irish economy, particularly in retail banking, will increase costs and reduce choice for businesses and consumers;

— there is a significant rise in the number of people accessing credit by means of expensive moneylenders;

— non-bank funding in Ireland is low by international standards; and

— there is a commitment in the programme for Government to establish a strategic investment bank;

recognises:

— the importance of credit for the small and medium enterprise, SME, sector in sustaining an economic recovery and supporting job creation;

— that competition and strengthened regulation are essential to a properly functioning banking sector; and

— that increased bank fees and charges are placing a significant burden on business and personal customers; and

calls for:

— the Central Bank to examine the competitive state of the Irish banking sector;

— action to encourage non-domestic banks to establish a retail presence in Ireland;

— verification that the State-supported banks are fully meeting lending targets;

— action to improve non-banking sources of funding for the SME sector;

— improved regulation of licensed moneylenders to protect consumer interests, and measures to tackle illegal moneylenders;

— a State-owned enterprise bank to be established as a permanent solution to the lending gap which exists in Irish banking; and

— action to be taken to ensure the long-term stability of the banking sector, taking into consideration the imminent report of the Committee of Public Accounts on bank stabilisation.
I apologise in advance for having to leave straight after my speech so I will not be able to hear the Minister's response. The recent decisions of Danske Bank and ACC Bank once again place in sharp focus the perilous state of business banking in Ireland. However, anybody in business does not need to be reminded of how serious the situation regarding SME credit and support for business is. The Danske Bank and ACC Bank developments are bad for business confidence and the wider economy and follow the loss of Halifax, Postbank, Anglo Irish Bank, Irish Nationwide and EBS, which was folded in to AIB. On a more positive note, we welcome the expansion of KBC Bank and the ambition of Permanent TSB to be a strong retail bank following the submission of its restructuring plan to the European Commission. Ulster Bank has recently announced that much of its Irish business will be put into an internally managed "bad" bank. It had been feared that Ulster Bank might decide to leave the Irish market entirely so it is welcome that RBS said Ulster Bank was an important business for the whole island of Ireland and added that it wanted to ensure it had a viable business model.

As the banking market has contracted, the dominance of two pillar banks - Bank of Ireland and AIB - is returning to levels last seen in the 1980s. As a result of the loss of competition, the two pillar banks now command approximately 70% of the current account market. That is not a healthy development in any market.

The lack of competition is leading to higher fees and charges, lower interest rates on deposits, high borrowing costs, a full-scale withdrawal of banking services in many communities, a restriction on services in others and a complete lack of innovative product choice. The small and medium enterprise, SME, community, in particular, is bearing the brunt of higher charges. Charges for coin lodgements have increased substantially in recent years. Some banks even restrict the days on which one can lodge coin in their various branches, such is their lack of regard for the realities of modern day business. The president of the Irish Small and Medium Enterprises Association, ISME, Eamonn Kielty, put it succinctly when he said last week: "A normal competitive banking market no longer exists in Ireland, and currently the banks are primarily concerned with self-preservation and deleveraging. As foreign banks exit stage left, the remaining bailed-out two will no doubt take advantage of the lack of competition to hike up their charges." That is representative of the views of those who are at the coalface every day.

Against this background, there is huge uncertainty within the banking sector in Ireland at present. It is our contention that the proposal before the House would serve to inject confidence to the banking market and the country generally, and would demonstrate a major statement of intent on behalf of the Government in terms of our economic recovery. A State enterprise bank, similar to those in Canada, the US and Germany and the model currently under development in the UK, should be considered for the provision of capital to growing businesses. There is a commitment to this notion in the programme for Government. Instead of long fingering this, the Government must act now and honour that commitment more than two and a half years into its term. An enterprise bank could be a permanent solution to the lending gap which exists in Irish banking. It would lend to any company, regardless of sector or size, provided it demonstrated its creditworthiness. It would remain in State ownership even after the State had sold its stake in the pillar banks.

An enterprise bank should have the following features. It should focus on smallscale lending up to €5 million. It would not seek to compete directly with existing banks in a way that would crowd them out, but provide a complementary source of finance. Funding decisions should be taken based on a rigorous assessment of a company's future prospects. Loans would not represent grant aid but would be soundly based on viable business plans. It should provide advice to borrowers in a way that assists the development of their business and benefits the wider economy. The establishment of an enterprise bank would be recognition of the importance of the SME sector to the economy and its recovery.

SMEs are the lifeblood of the economy, representing nearly 99% of active enterprise, 70% of all employment in the State and 46% of gross value added in the economy. The domestic SME sector is diverse in nature and employs workers with a much wider range of skills that the multinational sector. SMEs can range from the smallest business to local supermarkets and enterprises employing less than 50 people. Our jobs crisis cannot be solved in its entirety by focusing on foreign direct investment alone. By supporting the SME sector we are ensuring job opportunities for those with traditional skills as well as for people with high tech qualifications.

The Government has sought to roll out a series of SME-friendly initiatives and we have welcomed that. We also support the Taoiseach's aspiration that Ireland will be the best place in the world in which to do business by 2016. However, this will not happen while we have an impaired credit market. We do not support initiatives such as the changes in employers' PRSI, which will cost small business €22 million next year, and the abolition of the redundancy rebate. These initiatives will seriously add to the problems SMEs face in cash management.

Earlier this year Fiona Muldoon, the Central Bank's director of credit institutions, disclosed that half of the €50 billion in loans outstanding to the SME sector were non-performing. Many of the loans are backed by personal guarantees, meaning businesses and potential entrepreneurs are still trying to come terms with their debt. This is an issue on which the Central Bank must act urgently. There are many excellent and viable businesses which are important employers and contributors to their local economies, but which are being dragged down because of legacy debt. They can service their day-to-day business and financial requirements, but cannot service the legacy debt at this time. Given the chance to grow their business and get through this period, many of them will be in a position to service that legacy debt in a number of years. There must be an urgent and targeted initiative on the part of the Central Bank to assist these viable businesses and allow them to maintain employment and services in their communities, while at the same time negotiating with them to address that debt at a future time. This is exactly the type of role an enterprise-focused bank can have. It could roll out such an initiative.

The OECD, in its report on Ireland, noted that the banks have met the targets set by the Government for lending to SMEs. However, it found that two thirds of new SME lending is just rolled over on existing loans, while the overall stock of lending to SMEs is substantially declining. That proves what we all know from our daily interaction with people. New lending is actually overdrafts being converted to term loans, often without any notice to the borrower, or various limits being changed around into different products which are higher margin for the bank but more expensive to the customer. Central Bank lending statistics support this. They show that lending to non-financial or property-related small and medium enterprises was down by 1.4% between April and June, compared to the same period a year earlier, with the amount of credit outstanding to the sector now €1.5 billion less than at the same time in 2012. Yes, that represents a pay down of facilities but also, in many cases, a famine of credit facilities.

ISME's latest quarterly survey published in September found that 57% of companies that applied for funding in the last three months had been refused credit by their banks, compared with a 44% rejection rate in the last quarterly survey. On average, the decision time has increased from four to five weeks to get a decision. That is if the application was submitted. A total of 30% of respondents had increases in bank charges imposed during a lending process, while 11% suffered increased interest. Reductions in overdrafts were demanded of 31% of SMEs, up from 28% in the previous quarter. A steady 95% of respondents to the survey, people at the coal face, state that the Government is having either a negative or no impact on SME lending. While 55% of respondents are aware of the credit guarantee scheme, only 28% know about the microfinance scheme, down from 37% in the previous quarter. I will refer to those two schemes later.

A report by Bain & Company and the Institute of International Finance into European SME financing found an 82% drop in SME lending in Ireland, which was considerably worse than the other five European countries analysed. They included Portugal and Spain, two peripheral eurozone countries that, like Ireland, have had to rely on outside financial help. It also found that Irish SMEs are paying interest rates up to three times higher for lending than their German counterparts.

Finally, the Credit Review Office found in its 12th progress report, published in late September, that while the pillar banks continue to lend to low-to-medium risk credit applications, credit conditions remain tight overall and appeal requests are rising. That is a welcome initiative, but it shows the difficulties on the ground.

The Government will dispute these figures, but they are from the coalface. The ISME survey involved the men and women who every day must worry about how they are going to keep the doors of their businesses open and how they are going to pay the wages for their staff at the end of the month. Many of them pay their staff wages but do not take a wage themselves. They also worry about how to keep the Revenue Commissioners happy for another month. These are the people which banks leave waiting for five to seven weeks at a time. In anticipation of these figures being disputed by the Government, the motion calls for an independent review of how the pillar banks are meeting their targets. If they are supposed to be lending €400 million to SMEs, show us and an independent person where it is going.

I referred to some of the initiatives started by the Government. The Microenterprise Loan Fund during its first year of existence lent €1.62 million. At the time of its launch in October 2012, the Minister for Jobs, Enterprise and Innovation, Deputy Richard Bruton, said it would lend €40 million over five years, create 7,700 jobs and lend money to 5,500 businesses. We had a very good exchange with Microfinance Ireland earlier today at a meeting of the enterprise and jobs committee. It is working hard but its representatives stated clearly that microfinance is not a panacea to the credit crisis and it should not be seen as such. I hope Government Deputies noted that.

The seed and venture capital scheme was launched by the Minister, Deputy Bruton, to encourage venture capitalists to invest in companies that find it hard to raise money in their early years, such as technology start-ups. The Minister was hoping to invest €175 million into the scheme to leverage an additional €525 million from private investors. The "first of several calls for investment", to quote the advertisement, was made on 31 May and investors had until the end of June to express an interest.

Money has not yet been allocated under the scheme, despite this being the sector on which the Government is pinning so many of its economic recovery hopes.

The €450 million credit guarantee scheme, which has been up and running for approximately one year, offers a 75% State guarantee to banks against the losses on loans given to particular businesses. It was expected, and we were told, that it would provide an additional €150 million per year in lending for small businesses. In its first ten months, it has loaned only €8.5 million, with 393 additional jobs created and 119 jobs protected. This is so bad that the Government is reviewing the scheme a year into its operation.

We have many schemes and a great deal of spin, but we have very little extra credit or employment. We are more than half way through the life of this Government. Is it serious about the commitment made in the programme for Government? The Government parties are great at claiming that manifesto commitments are only manifesto commitments. To cite the Minister for Communications, Energy and Natural Resources, they are the kind of commitments one makes during an election. However, this commitment made it through to the programme for Government. It is the type of operation that will take time to establish. If the Government is serious about setting up an investment bank, it will commit to a timescale this evening.

The Labour Deputies are absent this evening. Perhaps they are modelling somewhere. Along with them, the Minister for Social Protection, Deputy Burton, championed the cause of an investment bank during the time of the former Government.

8:45 pm

Photo of Michael Healy-RaeMichael Healy-Rae (Kerry South, Independent)
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Wonder Woman.

Photo of Dara CallearyDara Calleary (Mayo, Fianna Fail)
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They need to invest in the small to medium-sized enterprise, SME, community, the same community the Government promised it would deal with upward-only rent reviews. That promise is gone. Will the investment bank and enterprise bank promises go the same way? If so, the Government should say so now instead of tabling a flim-flam amendment that expresses nothing of the reality being experienced by SME owners. If the Government is serious about SMEs and making them a part of the recovery that is under way, they must be given finance. If the Government wants to leave them behind, it will vote down this motion tomorrow night.

Photo of Michael McGrathMichael McGrath (Cork South Central, Fianna Fail)
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I welcome the opportunity to contribute on this debate, the importance of which is the reason Fianna Fáil decided to dedicate our Private Members' time to the issues of lending and the establishment of a State-owned, SME-focused new enterprise bank.

The debate's starting point is to acknowledge that we have a real problem. If we do not acknowledge the problem with availability of credit in the economy, we will not solve it. Access to credit is to an economy what fuel is to a car. One cannot have a properly functioning economy unless one has an adequate supply of credit. We can debate this matter all night, but if one speaks with business people who rely on credit from financial institutions, one will be given the consistent message that credit conditions remain extremely difficult. Whenever I speak with a business person, I ask about the main challenges facing him or her. Credit is always in the top three. The other two are generally issues of compliance and red tape and the cost of doing business, for example, local authority rates, energy costs and so forth. Almost without exception, credit and finance are key issues for businesses, particularly in the SME community.

Through various statistics, Deputy Calleary outlined the importance of SMEs to the economy. We all acknowledge that they will be the driver of Ireland's economic recovery. We love to hear of multinationals coming to Ireland and would like to see many more of them, but it is now rare to hear of a multinational coming to Ireland and announcing 700 or 800 new jobs, themselves leading to spin-off jobs. The IDA will need to continue working on that side of the economy, and the best of luck to it, but our onus is to focus on SMEs, particularly in terms of credit.

The Government refers to lending targets. The two pillar banks must meet a target of €4 billion each in 2013. They claim they will do so and, upon examination, the Credit Review Office, CRO, asserts that they are on course to meet their targets, but Deputy Calleary is right. In many ways, it is a phony debate. At least two thirds of the composition of the €4 billion per bank will involve refinancing and rolling over existing credit. There is nothing wrong with refinancing existing credit or rolling over loans, as it remains credit and forms an important part of the economy, but it is not new credit and we should not measure it as such. The CRO's latest report made it clear that, in many respects, the €8 billion target for AIB and Bank of Ireland is a false one, as no one is suggesting the economy needs anything near new lending of €8 billion to the SME sector. In the report, Mr. John Trethowan pointed to the argument that, if new lending of €8 billion per annum were to be achieved, it would require a lending-borrowing rate of approximately twice that of the EU's most successful economy, Germany, on a like-for-like scale basis.

Let us have a real debate. Let us set targets for new lending - not approvals, but the drawing down of new credit. This debate has been kicked around for the past two or three years. The banks are meeting their targets. Some of that is repackaging existing credit, with a small element of new credit. Can we not once and for all agree on the definition of what constitutes a lending target and have the banks independently assessed, perhaps by the CRO, to ensure the targets are being achieved? This would be critical.

Many SMEs are cautious about taking on new debt and many loan offers are not being drawn down. This is for a number of reasons. SMEs got burned by property investments, many of which have contaminated good trading businesses. When approvals are given, often after a long time, they come with such onerous terms and conditions and punitive interest rates that drawing down the credit would not be sustainable for the businesses in question. Many of those approvals come with demands for personal guarantees, which many people are not prepared to give for obvious reasons. They have seen the consequences for those who made personal guarantees in recent years in respect of property investments.

We must accept that there is a distinct lack of competition in Ireland's banking sector. Deputy Calleary referred to a number of the banks that have left Ireland or have signalled they are about to leave, including ACC Bank, which will hand back its banking licence. There have been some positives, for example, the expansion of KBC. Investec, a welcome and relatively new entrant to Ireland in recent years, has indicated it will enter the mortgage market. We badly need competition in that sector.

Ireland must be primed for new entrants to the banking sector. I am referring to entrants with clean balance sheets and that are not burdened by historical tracker mortgages, which are dragging down a number of our domestic banks. These new entrants would not have been burned by Ireland's property experiment. If the banks that operate internationally shared the Government's confidence in the future of the Irish economy, I would expect more of them to want to enter our market and offer personal customers and SMEs products and services. I hope the Government is actively trying to attract to Ireland banks that, importantly, are not burdened by the legacy issues of tracker mortgages and property loans.

I have mentioned the pillar banks' targets. A frustration for many business people relates to the discretion that was historically found in local branches. People used to talk to and build personal relationships with bank managers who knew the businesses in question intimately. Nowadays, a manager does not appear to have any power. Virtually no significant lending decision is made at the branch level. It is passed up to head office where it goes through a risk assessment process. This is a weakness in how the banking system has developed. Power and discretion always existed at local level, where the people involved in making the decisions knew the businesses and the people running them well, had established trust and built relationships.

That seems to have been demolished due to the experience of recent times. It is frustrating for business people who are seeking loans. Comments have been made about why the number of cases going to the Credit Review Office is so low. I would argue it is because business people can only go to the CRO after they have exhausted all the internal channels within a bank. They must first make a formal loan application, which takes time and is onerous. They have to receive a decision on that application and must then exhaust the bank's internal appeal procedures. It is only when their appeal has been refused that they can go to the Credit Review Office. In many instances, however, the request for credit is quite urgent so people in business cannot wait for the process to conclude before taking a case to the CRO. The Government should examine that issue. Surely it should be sufficient that if a bank refuses an application, a person can go directly to the CRO.

I welcome the recent budget increase to €3 million in the threshold limit for loans that can be considered by the CRO. That is an important step and it is to be hoped we will see more work going to the CRO. The Government must ensure Ulster Bank is brought under the remit of the Credit Review Office. At the moment, the CRO's remit covers AIB and Bank of Ireland. People who have commercial loans with Permanent TSB, which experimented in that market, do not have the right to go to the Credit Review Office. That issue needs to be addressed.

The significant reduction in competition in the Irish banking sector has consequences for customers by way of increased fees and charges, reduced interest rates on deposits, and higher rates of interest on loans for personal customers and SMEs. We need to have two fundamental aspects to our approach to banking. The first is regulation, which was deficient in the past and we all acknowledge that. The second and equally important pillar is competition. Much more work must be done by the Government in that respect. Allied to that, the Central Bank must do much more to protect consumers, given its regulatory role. The Central Bank is not there just to supervise the banking system prudentially and ensure the checklist of regulations is being ticked. It is also there to protect consumers, so I want to see the Central Bank being more prominent in that role.

Our motion alluded to moneylending. I acknowledge that licensed moneylenders are operating a legitimate business and are regulated by the Central Bank. A recent report showed a 20% increase in recent years in the number of those availing of moneylenders' services. Some 360,000 people owe approximately €200 million. The study found that about one quarter of them have at one stage got into serous difficulties in repaying those loans. That tells us something about the state of the economy, of which we are all acutely aware. In addition, that so many people have had to turn to moneylenders means that traditional providers of credit in the economy, such as banks and credit unions, have not been able to supply the credit required.

There are without doubt people who should not get any more credit. They would like to draw down loans they can never afford to repay based on their income. Banks must be prudent and protect the capital that taxpayers have given to them, but there is undoubtedly an issue concerning the contraction of lending.

Above all else, we want to see a new enterprise bank which is focused on SMEs. The Minister's amendment acknowledges that the Government promised a strategic investment bank to provide finance for large capital projects, a conduit for venture capital and a lender to SMEs. As a precursor to that, the Minister has established the strategic investment fund, although we have yet to see the legislation to provide for a reorientation of the National Pensions Reserve Fund to channel some money towards the strategic investment fund.

A greater priority for the economy is the issue of SME lending. If we can agree on one thing, it should be that the engine of recovery will be SMEs. They are certainly starved of cash and many of them find it exceptionally difficult to obtain credit. That issue will have to be addressed. The banks seem to have swung from one extreme to the other. Seven or eight years ago, they were throwing money at people, as it were, and seemed to have no concept of risk assessment. They took substantial risks in putting all their eggs into the property basket and we have all witnessed the outcome for the banking system and the country.

Banks appear to have gone to the other extreme now, being risk averse and unwilling to take any chance in respect of trading businesses. This even includes businesses with which the banks have built up a strong relationship over the years. Banks have been consistently restricting overdrafts in recent times. I acknowledge that the troika programme contains strict targets for banks to meet in terms of repairing their balance sheets, rebuilding their loan-to-deposit ratios, and de-leveraging non-core assets. All that has percolated its way down to individual SME customers. It has meant that banks are less inclined to give out more credit or have been aggressively targeting deposits in an effort to rebuild those ratios. That is what the banks are doing and there seems to be no reward or incentive for them to give out new credit.

If the Minister does not believe what we are saying, he should listen to those at the coalface. Deputy Calleary referred to ISME's recent quarterly report on lending which reads:

Despite assertions from the banking PR machine, access to credit is abysmal. The application process is getting more tortuous while zealous bankers terrorise owners of small and medium businesses with legal letters of foreclosure, rather than negotiate an economic settlement.
One can accuse Mr. Mark Fielding, the CEO of ISME, of exaggeration but he is representing thousands of business people. I have heard none of them contradict what he has consistently said about credit. I know the Minister will not accept our motion but I hope he will accept the need for a new SME-focused enterprise bank. The Government should start doing some detailed work on that issue to see how it can be established and what the mechanics are. The Government should accept that such a bank could play an important role in the recovery of the economy.

8:55 pm

Photo of Niall CollinsNiall Collins (Limerick, Fianna Fail)
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I am grateful for the opportunity to speak on this important issue. It is fair to say that for some time the Government has not sponsored a genuine debate in this House on the plight of the SME sector. It is fitting that my colleagues, Deputy Dara Calleary and Deputy Michael McGrath, have taken this opportunity to articulate the many problems being faced by SME companies and employers.

It has been rightly pointed out that this is a commitment in the programme for Government. For a change, we are not holding the Minister to account for doing a U-turn or breaking a promise. Instead we are asking him to live up to what is in the programme for Government. We must acknowledge at the outset that there is a problem. Any SME will confirm that there is a severe shortage of credit lines. If companies do not have credit facilities, they do not have blood flowing through their commercial veins and so their businesses will die. That must be the starting point.

The consequences of less credit include less turnover, less choice for customers, less competition and less employment. In addition, there will be less business in our cities, towns and villages. We are seeing many SMEs dying on their feet, so to speak, with businesses closing down, particularly in city centres. In my city of Limerick, the business core has been hollowed out. Similarly, many towns and villages have been hollowed out as businesses have closed.

The banking landscape has changed with the pull out of Danske Bank, ACC, Halifax and PostBank, as well as Anglo Irish Bank, Irish Nationwide and EBS.

We must be grateful for Ulster Bank's commitment to the Irish economy and the recently announced expansion of KBC. I welcome the opening of its regional headquarters in O'Connell Street in Limerick, which was badly needed.

It is worrying that the two pillar banks comprise almost 70% of the market. This means we do not have competition or choice. We all know the consequences of a lack of competition and choice, namely, higher fees, higher interest rates and higher bank charges, all of which put pressure on SMEs and erode confidence. We all also know that the pyramid and structure upon which business is built is credit and confidence. Confidence in the marketplace is as important as credit. Our SMEs account for 90% of our active enterprise and up to 70% of employment throughout the country. This puts into context the reason SMEs need to move further up this Government's list of priorities. Sadly, from the feedback which I and other Members from all sides of the House are receiving, they do not rank as a priority.

It was worrying to read in this morning's Irish Independentthat up to one quarter of our credit unions may be severely restricted and are on what has been termed "a watch list". We all know what happened in regard to Newbridge credit union. It is very worrying that up to one quarter of our total stock of credit unions have a problem.

Another issue is the serious impact the black economy is having on the SME sector. Retail Ireland says that up to €900 million per annum, almost €1 billion, is the cost and impact of the black economy on our SME sector. The SME sector is struggling owing to a lack of credit and must also compete with operators in the black economy. This issue must be addressed by Government as soon as possible.

Another area under the direct supervision of the Minister of State, Deputy O'Dowd, is the roll-out of Irish Water. Particularly disturbing for businesses is spiralling water charges under the watch of local authorities. It is reprehensible that local authorities are not accountable to this House through the Committee of Public Accounts. The Government needs to look at issues such as charges on business by local authorities in terms of commercial rates and water charges and, on the other hand, waste within our local authorities, which are not scrutinised by this House. The establishment of Irish Water will be a significant cost factor for business. The Government does not propose to amend the Freedom of Information Act to include Irish Water which will take over the water infrastructure and heap significant charges onto business, which is a disgrace. Business and the public are entitled to expect openness and transparency in terms of the charging structure and the roll-up of costs in respect of Irish Water, how contracts were awarded and so on but this information will not be available to Members of this House or members of the public under the Freedom of Information Act.

The Government also needs to review utility charges for businesses, which have spiralled over the past number of years. There is a need for significant promotion of alternative sources of energy, including wind, solar and wave energy. The Shannon estuary in the mid-west where I live could be used to provide wave energy. Many reports on this issue have been published but remain on shelves. The industrial and commercial energy demands of the mid-west could be sourced from wave energy. The Government needs to ensure access to credit and to think outside the box in terms of alleviating pressures and costs on the SME sector.

9:05 pm

Photo of Michael Healy-RaeMichael Healy-Rae (Kerry South, Independent)
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I thank Fianna Fáil and, in particular, Deputy Niall Collins, for allowing me some of his time to contribute to this important debate. I also thank Fianna Fáil for bringing this motion before the House. It is vitally important we debate the financing of small business. An SME-focused new bank would be a worthwhile venture. I speak on this issue as someone who has been involved in small business for many years. I was 17 years old the first time I borrowed money from a bank. I have been borrowing ever since. I know the importance and value of being able to borrow money.

We have come full circle in that the banks who were throwing money at individuals and businesses in the past are no longer lending. It is not true to say that there is money available to small businesses. I know from personal experience that it is not. Decisions being taken by this Government are detrimental to small businesses. I will give an example. We are all against smoking. The plain packaging proposal by this Government will lead to job losses in that people who up to now purchased their cigarettes in shops will now buy them on the black market. I have no doubt that the number of people purchasing illegal cigarettes will increase and that the footfall for shops will decrease, resulting in job losses. I am 100% sure of that.

Other decisions are being taken by this Government which are detrimental to small business. For example, the HSE, in terms of its being over-anxious with inspections, is not doing anything to help small businesses. Most of the people involved in food preparation have been doing so all their lives. They know what needs to be done and the standards that must be met yet inspectors are breathing down their necks every hour of the day and night and insisting on all types of paperwork being available at all times. This is putting an additional burden of cost on small businesses.

A new bank that would focus on SMEs is a worthwhile proposal. I compliment Fianna Fail on bringing the proposal forward.

Photo of Michael NoonanMichael Noonan (Limerick City, Fine Gael)
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I move amendment No. 2:

To delete all words after “Dáil Éireann” and substitute the following:

“notes that, in order to ensure an adequate flow of credit to viable companies, this Government in 2011 imposed challenging targets on AIB and Bank of Ireland for lending to small and medium businesses, and continues to monitor the banks’ progress in meeting these targets;

acknowledges that the Credit Review Office is available to businesses refused credit by Bank of Ireland and AIB and has overturned over half of the cases referred to it and encourages businesses to use this important facility;

notes that:— both AIB and Bank of Ireland have stated that they have set aside €2 billion each for new mortgage lending in 2013, while Permanent TSB has indicated that it is prepared to lend
over €300 million in this area; and
— this Government inherited an economy with a severely impaired banking system but has moved to ensure, through the implementation of effective policies to promote economic
growth, that Ireland remains an attractive location in which foreign banks can operate;
acknowledges that, while the number of consumers choosing to make use of the services offered by licensed moneylenders has increased by 20 per cent since 2005, the majority of moneylenders’ customers reported high satisfaction levels regarding service and believe that they are treated fairly when in arrears;

notes that:— moneylenders are licensed and regulated by the recently-strengthened Central Bank and that consumers continue to be protected by the Central Bank’s Consumer Protection Code
for Licensed Moneylenders; and
— Ireland is leading the dialogue across Europe on how best to expand market-based non-bank financing and that the recent budget included initiatives to encourage equity investment
in Irish businesses;
further acknowledges that:

— the programme for Government contains a clear commitment to creating a strategic investment bank that will become a provider of finance to large capital projects, a conduit for venturecapital, and a lender to small and medium enterprises, SMEs; and— while the Government’s priority at present is the creation of the Irish strategic investment fund and the reorganisation of the National Pensions Reserve Fund, which can makeinvestments more quickly than would be possible were the Government to establish a bank for this purpose, it is intended, in parallel, that the strategic investment bank concept will be further considered;recognises that the National Pensions Reserve Fund has established funds that support both strategic projects and a number that support SME financing;

accepts that SMEs are the engines of economic growth providing over two thirds of employment in the State and that the Government has charged the SME State bodies group with the task of implementing initiatives aimed at meeting the needs of Irish businesses for access to a wide range of bank and non-bank finance as set out in the Action Plan for Jobs;

further recognises that Ireland, in the course of its recent Presidency of the European Union, played a key role leading the debate at EU level to ensure that banks in Europe will be well regulated, well capitalised and sufficiently robust to withstand economic cycles;

notes that a number of significant legislative reforms have been undertaken since the financial crisis aimed at building a strengthened regulatory framework for the Irish financial services sector and responding to the pre-existing shortcomings that had been identified in our system of financial regulation;

further notes that these legislative reforms have been supplemented by a significant increase in regulatory activity by the Central Bank with a corresponding increase in staff numbers and powers; and

notes that section 149 of the Consumer Credit Act 1995, as amended, provides that credit institutions and bureaux de change must notify the Central Bank if they wish to introduce any new customer ‘charge’ for providing a service or increase any existing customer ‘charge’ for providing a service.”
I wish to share time with Deputies Dominic Hannigan and Tom Barry.

As the Government's counter-motion makes clear there can be no doubt that the legacy issues facing this country, its people and its enterprises are serious in nature and many in number. However, it should also be clear that this Government has moved to tackle these issues head on, both at home and with its partners in Europe. Furthermore, the Government continues to make all efforts to strengthen our economy through encouraging business, improving regulation of our banking system and ensuring that Ireland and its people are served by financial institutions that add value to the economy.

It is the Government's vision that all viable businesses operating in Ireland should have the opportunity to access sufficient finance to meet their enterprise needs in a manner that supports growth and employment in the economy. Therefore, credit availability for SMEs is a key aspect of the Action Plan for Jobs 2013. The working capital requirements of many SMEs are often fulfilled by short-term credit in the form of overdrafts or short-term loans.

Additionally, the Government has imposed challenging SME lending targets on AIB and Bank of Ireland for the three calendar years, 2011 to 2013. Each bank was required to sanction lending of at least €3 billion in 2011, €3.5 billion in 2012 and €4 billion in 2013 for new or increased credit facilities to SMEs. Both banks have reported that they achieved their 2011 and 2012 targets and a recent Credit Review Office quarterly report commented that both banks are on track to achieve their €4 billion loan sanction targets, assuming the pattern of previous years of a strong fourth quarter performance is repeated.

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.

The Credit Review Office was established to help SME or farm borrowers who have had an application for credit declined or reduced, and who feel that they have a viable business proposition. AIB and Bank of Ireland are expected to lend to viable businesses both for investment and working capital purposes. The recent CRO report shows that the Credit Review Office upheld the credit appeal in 150 cases, or 55% of cases decided. The upheld appeals have resulted in €18.5 million in credit being made available to SMEs and farms, protecting 1,521 jobs. This shows that there is a strong prospect of success for SMEs going to the Credit Review Office and SMEs refused credit are strongly encouraged to seek a review by the office.

I introduced a number of measures in the budget for funding growth in the SME sector. There is to be a substantial increase in the upper limit for loan applications that can be appealed to the Credit Review Office, from €0.5 million to €3 million, to facilitate requests from a broader range of SMEs. The level of awareness among SMEs and entrepreneurs of the full €2 billion suite of developmental business supports remains low. In order to address this, a comprehensive communication strategy will be rolled out in the coming months. To improve the framework of credit supports available to SMEs, a subsidised financial training programme for small businesses is being introduced, consisting of two days dedicated off-site training, together with expert mentoring support. Work will be undertaken with the European Investment Bank to develop a tailored and customised trade finance initiative to support the growth of the export sector, providing much needed finance to exporters and restore confidence, support trade and foster growth and employment. We will address specific challenges of funding international trade through a broader suite of financial products. These initiatives form part of an existing suite of measures to assist the SME sector. Enterprise Ireland offers a range of schemes to small businesses and the Minister for Jobs, Enterprise and Innovation has introduced the credit guarantee scheme and the microenterprise business lending scheme.

We are able to tailor our policies to the needs of the SMEs as we actively listen to the enterprise community and react where we see the need for and possibility of government intervention. The Department of Finance commissions biannual surveys of the demand for credit from SMEs. The results inform and guide the Government's policy on securing and maintaining the availability of credit to SMEs. The survey results also provide useful information to the banks, SME representative organisations and individual SMEs, as well as the Credit Review Office on what they can do to assist in the flow of credit to viable businesses. Another benefit of these surveys is that they assist in clarifying the often conflicting perspectives presented in respect of the availability of credit and the actual demand for credit among this important sector of the economy.

The National Treasury Management Agency and in particular, the National Pension Reserve Fund, have been activated to help funding into the real economy. In many cases they are in partnership with private sector investors. To date, the NPRF has established the following: the SME equity fund will focus on investing in healthy businesses seeking to grow, including those with overleveraged balance sheets. This fund involves a contribution from the NPRF of €125 million with an ultimate fund size of €350 million. The SME credit fundwill lend to larger SMEs and mid-size corporates and will be managed by BlueBay Asset Management. It aims to leverage €175 million of NTMA funds ultimately to provide €450 million to the market. The SME turnaround fundwill invest in underperforming businesses which are at or close to the point of insolvency but have the potential for financial and operational restructuring. This has €50 million of Government backed funding, with a total fund size of €100 million. The National Pensions Reserve Fund has also been working closely with Enterprise Ireland and the Department of the Taoiseach to assist in setting up the Innovation Fund Ireland,a €500 million Government initiative designed to attract leading international venture capital fund managers to Ireland.

The recent decisions by ACC and Danske Bank to withdraw from the Irish banking market were disappointing, following the withdrawal of Bank of Scotland (Ireland) some time ago. It is consistent with a trend evident through the course of the financial crisis of retrenchment to national borders. Banks operating in Ireland allocate significant resources to restructuring, cost savings, re-engineering processes and products, managing their legacy portfolio and dealing with customers in difficulty. Justification of such investment is clearly challenging for institutions also facing difficulties in their home markets, much in the same way it was difficult for Irish banks in difficulty to justify maintaining their operations abroad. One of our expectations from the financial crisis is that market shares in traditional banking services will become more fluid during the recovery, as the banking landscape continues to adjust to the withdrawal of foreign players, the restructuring of our incumbent banks and the increasing price transparency within financial services. We expect that over time, this will present opportunities in the market for the entry of new market participants well positioned to be confident in the future profitability of an Irish branch or subsidiary. While the current market may not be attractive to a fully diversified bank challenger in the short term, I would expect new financial services providers to enter the market on a more targeted basis, such as specialised lenders and non-bank finance providers.

This Government has been working hard to create an environment conducive to the entry of such new entrants through a number of initiatives and have been leading the debate at EU level on the mechanisms to promote alternative forms of financing for SMEs. It is important that we establish a level playing field for all banks if they will be willing to enter the Irish market and compete. In this regard, we are working to manage and minimise potential market expectations of future State support for the State owned banks which could act as a deterrent to new market entrants. We are working to establish a level playing field in the assessment of credit risk through the establishment of an industry wide credit register to allow for the appropriate measures of risk in lending, allowing incumbent and new lenders to lend with full visibility of the risk of that lending. We are working to reduce switching costs to allow customers to move between banks more easily, enhancing competition and forcing banks to work hard to retain their customers on a commercial basis. We are encouraging risk sharing partnerships to encourage new lending, such as the AIB-European Investment Bank lending initiative. We are in regular dialogue with potential market entrants as they evaluate potential opportunities in Ireland and we will be supportive of new entrants as they emerge.

There is little doubt that the recent bank exits will have an effect on the level of competition in the Irish financial sector. However, the banks are commercial entities independent of the Government; they make decisions on the conduct of their business separately to the considerations of the State and have the right to conduct their business as they consider appropriate. Nonetheless, the banks continue to be regulated by the Central Bank and they must comply with the relevant codes of conduct as they withdraw from business. This should mean that customers have sufficient notice to make alternative arrangements. The Central Bank's code of conduct on the switching of current accounts with credit institutions will apply when customers are moving current accounts.

The recent RBS review by the UK Government confirms the continuing role that Ulster Bank will have in the lending and deposit taking business for all customers here in Ireland. KBC has been expanding its network and its ambitions in Ireland. It is fair to say that it is not all bad news and that the Irish financial market does offer opportunities to institutions. This Government has also taken steps to ensure that the Irish financial market is accessible to any financial institution considering establishing in Ireland. In seeking to reduce the barriers to entry which are specific to the Irish banking market, section 149 of the Consumer Credit Act, which provides for the regulation of bank fees and charges, has been disapplied for three years in the case of new financial service providers setting up in Ireland.

Confidence in the Irish banks has been restored with reliance on eurosystem funding now a fraction of what it was at the beginning of the programme. Emergency liquidity assistance, ELA, has been removed from the system following the liquidation of IBRC. As part of the 2011 financial measures programme Irish banks were recapitalised to meet a capital requirement identified at €24 billion which was sourced from the private market, burden sharing with subordinated bondholders and from the State. The banking system has been restructured, including the merger of Allied Irish Banks with EBS and the de-leveraging planned under the financial measures programme which is due to be completed at the end of this year. The replacement of the promissory notes in IBRC with long-term Government bonds has brought significant cash flow benefits from a sovereign perspective. NAMA has maintained a strong financial position, generating considerable cash, leaving it on track to redeem €7.5 billion of bonds by the end of this year. Private capital has been introduced to the banking system, including the sale of equity in 2011 and contingent capital notes in 2013 in Bank of Ireland and the sale of Irish Life in 2013.

This Government will press ahead with further restructuring of the banking sector. In the context of the asset quality review, a preliminary assessment of the balance sheets of the prudential capital assessment review, PCAR, banks, a rigorous review is being performed incorporating an assessment of impairment provisions and a review of the appropriateness of risk weights for regulatory capital purposes. The review has the benefit of extensive sampling of loan files. In conducting the review we have had a high level of engagement with staff of the European Commission, the ECB and the IMF on progress, methodology, inputs, outputs and findings.

We will agree restructuring plans for AIB and Permanent TSB with the European Commission and these plans will be implemented along with the already agreed restructuring plan for Bank of Ireland. The legacy banking assets now housed in NAMA will be run down over time together with assets that will be transferred to it from the liquidated IBRC. We will continue our policy of exiting our banking investments in a manner that maximises the proceeds to be returned to taxpayers.

It remains a key objective of the State to return the banks to profitability as quickly as possible such that they are in a strong position to support and add value to the economy and facilitate an exit for the taxpayer. The State does not wish to be an investor in the banking sector and will seek to exit its various investments over time in a manner that delivers value for the taxpayer. We have already started this process and the financial progress made by the banks this year is encouraging and has been recognised by international investors.

As well as stabilising the banks following the crisis we have embarked on an ambitious and far-reaching overhaul of the regulation of the banking and financial services industries. Improved regulation is key to condemning the previous failings to the past and to ensuring that we can sever the toxic link between sovereigns and banks. We have done this both at home and in partnership with our EU neighbours.

This Government has undertaken a number of significant reforms since the financial crisis towards building a strengthened regulatory framework for the Irish financial services sector and to respond to the shortcomings identified in reports from Professor Patrick Honohan, Messrs Regling and Watson, the Nyberg Commission and the Moriarty tribunal which pointed out the problems to be addressed in our system of financial regulation. One of the challenges facing those who would consider investing in SMEs is the lack of information in the SMEs when compared to larger companies or indeed listed companies. The centralised credit register being established under the Credit Reporting Bill, currently on Report Stage in the Dáil, will aid decisions on the provision of credit to the SME sector and will modernise the framework for collecting and sharing this information in line with best international standards.

In 2011 the new fitness and probity regime was rolled out by the Central Bank in accordance with the provisions of the Central Bank Reform Act 2010. Following on from the Central Bank Reform Act 2010, the Central Bank (Supervision and Enforcement) Act 2013 was passed this year which enhances the Central Bank's regulatory powers, drawing on the lessons of the recent past in Ireland and abroad. It strengthens the ability of the Central Bank to impose and supervise compliance with regulatory requirements and to undertake timely prudential interventions. The Act also provides the Central Bank with greater access to information and analysis and underpins the credible enforcement of Irish financial services legislation in line with international best practice. These legislative reforms have been supplemented by a significant increase in regulatory activity by the Central Bank with a corresponding increase in staff numbers and skill levels.

9:25 pm

Photo of Michael KittMichael Kitt (Galway East, Fianna Fail)
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As there are a few pages left in the Minister's speech we could take some time from Deputy Barry.

Photo of Michael NoonanMichael Noonan (Limerick City, Fine Gael)
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We will let Deputy Barry speak.

Photo of Michael KittMichael Kitt (Galway East, Fianna Fail)
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Deputy Hannigan is due to speak first, then Deputy Barry.

Photo of Dominic HanniganDominic Hannigan (Meath East, Labour)
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I thank the Leas-Cheann Comhairle and the Minister for allowing me to speak.

The issues raised in this motion are ones I have been hearing from local businesses in my constituency in Meath over the past four years of the crisis. As a small business owner I understand the challenges facing SMEs. I also know how stressful an economic downturn can be for the owner or manager of a firm, with sleepless nights and stress-filled days spent trying to figure out how to keep on staff or grow the business. That is why this Government has focused on trying to fix the broken banking system we were left with by the previous Government which through its policies, or lack of policies, through its regulation, or lack of regulation, allowed the Irish banking sector to collapse, at a huge cost to the ordinary hard-pressed family.

The Minister must find it very galling to hear the Fianna Fáil Deputies who were responsible for the collapse come in here and call for "action to be taken to ensure the long-term stability of the banking sector". Their heads are all neck and no memory. If they were paying attention to what we have done over the past few years they would see that this is exactly what we have done nationally, through the setting up of the pillar banks, and internationally, through prioritising the banking union at a European level during our recent Presidency of the EU.

Our efforts are having some impact. There are signs that the economy is starting to turn around but it takes time for this growth to filter down to our local economies. People sometimes need to see signs of growth before they become confident and start to spend again. There is growth. We have seen 3,000 jobs created in each of the past few months. The live register has gone below 400,000 people for the first time in four years. Exports are continuing to grow and our GDP has been forecast to grow by 1.7% next year. We expect to leave the bailout programme by the middle of December.

Of course we need to keep close to what our businesses think. We do not have all the answers. That is why I decided during the summer to undertake a business sentiment survey in Meath. I wanted to understand more about the business climate in Meath right now and what businesses were thinking about the next few years.

Over 100 Meath businesses responded to my survey and I am very grateful to them for taking the time to do it. The survey showed that overall Meath businesses are optimistic about the future. There were some positive results from the survey including that 80% of businesses expect to maintain staff levels and 60% expect an increase in sales. There were, however, some worrying themes as well from which we need to learn. Over 75% of businesses made it clear that they did not think investing was a good idea in the current economic climate. More than half said experience with the banks was poor. Just 10% use a website for sales and many still have concerns about the stability of the economy and feel that it is too hard to get funding for investment at the moment. Some of our Government schemes need to improve, for example only 10% of Meath firms are successful when they apply to the micro-finance loan scheme, compared with a 70% success rate in Mayo. We need to ask why this is the case and to make sure that these schemes work for the businesses that need them. We need to improve confidence and get the message out that we are on the way to recovery and growth. We also need to keep on top of the banks and make sure that they are investing in new business to the level they claim to be. We need to encourage more businesses to trade on-line to sell in continental Europe and beyond because there are potential markets there.

Among the messages that businesses in Meath want the Government to hear are that the Government must reduce the red tape that exists, that our domestic economy still needs to be simulated and that banks still need to do better in terms of lending performance. I imagine these messages hold true for the rest of the country as much as for Meath. I have passed on this report to the Minister for Jobs, Enterprise and Innovation in order that when his Department is preparing the Action Plan for Jobs 2014 it can, hopefully, take on board some of these measures. We are seeing improvements but we need to do more especially in respect of the banks and how they are lending to businesses.

9:35 pm

Photo of Tom BarryTom Barry (Cork East, Fine Gael)
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I thank the Minister for his time and I recognise and value his interest in this crucial area. There is no doubt that the contraction of our banking sector will cause inconvenience but we must remember that the fall-out of 250,000 people losing their jobs in the private sector from 2008 to 2011 has reduced demand. As someone who has been involved in business I do not mind travelling a little further for my business banking if the bank I am involved with is actually banking. Most of the small and medium-sized enterprises that have survived so far have achieved a good deal. It has not been easy. The banks have not been lending in recent years and to survive, all costs have had to be examined, frills eliminated and the quality of service and product have had to be maintained.

We have travelled so far in this journey but I believe the real challenge lies ahead for SMEs. The challenge is equity. Not many people have mentioned it in the House tonight and it disappoints me when the Opposition does not mention it because it displays a lack of understanding of SMEs, even if the sentiments are well-placed and well-meaning. Why is equity so important? It is because most established SMEs do not have enough equity or have negative equity. The reason established SMEs are in this position is due to their previous strong financial positions as a result of which they diversified in several ways. Some took a play in the property market. Typically, this had a 50% write-down. If SMEs were unlucky enough to be enticed or targeted by some larger banks to invest in foreign property schemes, the write-down could be 100%. Others expanded optimistically and over-invested in equipment and buildings and now have a large capital expense with lower turnover and margin.

Today, in this world of reality, SMEs will survive but survival is not good enough. Entrepreneurs like me did not establish businesses simply to survive. We want to expand and grow. However, we will not grow without equity. Simply put, the issue of core and non-core debt needs to be tackled quickly. Onlookers and those not involved in business can be of the opinion that all that is important is cashflow. I smile when armchair experts look at me knowingly and say that it is all about cashflow. Survival is all about cashflow but expansion is about equity. Let us face it: in business a person does not consider expansion if his cashflow is poor, but without equity the consideration of expansion will not become a reality. Strong earnings will enable SMEs to afford taking on new investment projects and successfully repay the greater borrowings. However, if SMEs fail due to equity concerns, one of the ways to expand is to attack new projects on a piecemeal basis, although this will delay the time in reaching the new target. This may seem a reasonable approach but business waits for no one. First, indigenous jobs are not created immediately and second, if the market exists it will be supplied and that may come from expanded imports. Requirements not being filled between suppliers and customers puts doubt in the relationship between both parties and that is not good.

There have never been more opportunities for expansion and the Government has offered real and sustainable programmes. The JobBridge programme and the JobsPlus programme have been outstanding examples. JobsPlus offers employers €7,500 towards employing new staff members. It is an important scheme and I welcome it wholeheartedly. This is a great time for SMEs to expand and to put together a loyal and committed workforce. Gone is the casual approach of many employees towards employment and customer service which plagued our economy during the Celtic tiger years. I commend the Minister on his engagement with the European Investment Bank to channel more streams of funding towards SMEs.

What are the solutions? I suggest an evaluation should be carried out by the pillar banks to assess core and non-core debt. Only by knowing the extent of the problem can it be rectified. Some SMEs have never failed to make a loan repayment on an interest and principal basis but they have been designated as part of the pillar banks' bad bank. Some SMEs which have never been restructured on a loan due to financial distress also find themselves in the bad bank. Some SMEs have made substantial profits throughout the difficult years but are also part of the bad bank. Once an in-depth analysis is conducted, solutions to these ridiculous situations can be put in place. These will possibly include the direct recapitalisation of non-core business but it is an unlikely option. However, blanket recapitalisation of banks is a blunt instrument. The non-core SME debt should be re-financed over a longer term or else they should avail of lower interest rates. SMEs would also benefit if the non-core debt was State or European-guaranteed. This is similar to the partial loan guarantee fund for smaller loans. It would cost little since most of these SMEs are already feasible. Many SMEs would agree to a reasonable levy to partake in the scheme which would free the equity associated with non-core assets and open up the way for new business loans and job creation. Let us remember that getting a loan now takes time and proper analysis. There is little chance of repeating the poor lending practices which took place in this country and led to many of the problems we have.

We need to protect our SMEs and allow them to borrow once more by solving the non-core debt issue. If this does not happen, then for the next ten to 15 years these successful companies will be excluded from progressive expansion. As I stated earlier, standing still is not an option. Anyone who sets up a business or anyone involved in business wants to expand and that is the final letter on it. A ten-year sin bin may will condemn many SMEs to a slow wind-down. Many of the owner-directors in existing SMEs will be looking at retirement rather than expansion in ten to 15 years time and it is important to recognise this.

This is a work-in-progress and I recognise the work done to date by the Minister and the Government. The progressive approach taken towards business with the Action Plan for Jobs, the jobs initiative and Pathways to Work represent the first time SMEs have been engaged with and taken seriously. The National Pensions Reserve Fund and the National Treasury Management Agency funding offer great potential and I am delighted to hear it. It delivers something more important: hope to all of us who have clung on in recent years, who have kept people employed and who have fought against the odds. I have no doubt we will succeed and I thank the Minister.

Photo of Michael KittMichael Kitt (Galway East, Fianna Fail)
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The next speaking slot will be shared by Deputies Pearse Doherty and Jonathan O'Brien.

Photo of Pearse DohertyPearse Doherty (Donegal South West, Sinn Fein)
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I welcome today's debate. Sílim go bhfuil an cheist fíorthábhachtach seo á phlé againn ag an am ceart. Ní hamháin gur chóir go mbeadh ghnóthaí beaga in ann creidmheas eacnamaíochta a fháil, mar atá luaite go mór sa díospóireacht go dtí seo, ach ba cheart freisin cabhair a thabhairt don ghnáthdhuine amuigh ansin atá ag cuardach creidmheasa le cibé rud a dhéanamh - gluaisteán úr a cheannach, páiste a chur ar scoil nó dul ar aghaidh sa saol. Tá sé soiléir le cúpla bliain anuas go bhfuil daingniú nó cúngú tagtha ar an méid creidmheasa atá ar fáil do ghnóthaí beaga. Cluinim é sin i mo Dháilcheantar go minic, agus silím gur amhlaidh an cás do Theachtaí i gceantracha eile. Tuigim go bhfuil na gearáin céanna ag teacht isteach go dtí a gcuid oifigí is atá ag teacht isteach go dtí mo oifig. Níl gnóthaí beaga nó gnáthdhaoine ábalta creidmheas a fháil ó na bainc nó na comhair creidmheasa. Baineann cuid den fáth leis na srianta atá curtha orthu ag Banc Ceannais na hÉireann. Tá na srianta atá curtha ar na comhair creidmheasa, mar shampla, ag cur isteach ar ghnáthdhaoine amuigh ansin.

That being said, the tabling of the motion by the Fianna Fáil party is right. This is the proper time to have the debate on access to credit. Not only SMEs but many ordinary people seek access to credit in the run-up to Christmas and we are not too far away from that. How to pay for ordinary bills or presents is something on the minds of many people. This is a time when many people access the local credit union or financial institution. Unfortunately, some will go to moneylenders, legal and illegal, to access credit at this time of the year.

However, no constituency in the State has not been inundated with case studies of small to medium-sized enterprises, SMEs, that are struggling to find credit from banks or financial institutions with which they had long-standing relationships. While such enterprises were being drooled over by the financial institutions a few years ago with regard to the provision of credit, this has all dried up. Moreover, there has been a massaging of the figures that have been presented publicly heretofore. However, as the Joint Committee on Finance, Public Expenditure and Reform has dealt with the issue of how overdrafts are being turned into long-term loans and presented as new lending, I will not labour that point.

This issue must be put into context of the recent past. A notable economist came to these shores in recent days and spoke of a lost decade but one need only go back half of that decade, that is, to 2008 when the banking crisis started. The efforts that have taken place heretofore have not resolved the problems in the banking system and five years later, it is not possible to call it a normal banking system. As for the €64 billion of taxpayers' money, Members are familiar with all the pain and hardship that ordinary people throughout the State have been obliged to endure as a result of the decision that was taken by the previous Government, which unfortunately has been supported by the current Administration with regard to the injections it has made to recapitalise the banks. That money has not resulted in a new dawn for the existing financial institutions, which have not yet returned to normal practices. The targets that have been set by the Government for lending to new businesses have not materialised or have not been reached. As for the targets for dealing with mortgages, the different initiatives, going right back to the Keane report and other reports, have not borne fruit and the mortgage crisis has got out of control. It is to be hoped this has started to wane and the tide has begun to turn on that matter. However, the withdrawal of two banks from this State this week demonstrates the crisis is far from over and still persists. While it might not be as talked about and deposits might not be fleeing from the banks, the banking system in this State remains broken. The State will not have a proper banking system for as long as the current level of mortgage arrears continues.

I will not just focus on mortgage arrears but refer to the problem with this State. Deputy Michael McGrath gave the analogy of credit being the fuel that drives the economy and that is 100% correct. It is the oil that lubricates the engine but one must be careful as to the type of oil one puts into one's engine because were one to put in the wrong type, one could do serious damage to it. From the point of view of the State, credit is needed, as is a banking system that is properly able to maintain the supply of credit in the economy. However, it must be sensible credit and it must be sensible lending. One reason that banks are not lending at present is because there is far too much debt in the Irish economy, be that business debt, personal debt or banking debt. This is where one must get to the crux of the matter and it takes me back to the point on mortgage arrears, which is that for as long as one in four domestic mortgages are in arrears, the State will not have a normal banking system. Until the banks begin to get through this message that they must begin to take action, one definitely will see the aforementioned lost decade for the economy.

My party has proposed amendments to the motion to provide a more rounded debate today, but absent from it is the context of what has happened to the €64 billion that has been injected and committed by the Government. Unfortunately, even though some rescheduling has taken place, every penny of that recapitalisation is to be paid by Irish taxpayers. In the context of credit, the motion does not simply speak to the SME sector but rightly refers to moneylenders. However, it does not mention the issue of large credit providers in the State, namely, the credit union sector and it is important to note the significance of that sector in society, which I consider to be of systemic importance today. I believe there is a need for an independent examination of how the Newbridge Credit Union issue was handled by the Government, the Central Bank and the special manager, as I believe they made a dog's dinner out of it, to say the least. It took 22 months to reach a point at which the credit union was to be liquidated within days because of a run on the credit union. This run on the credit union is being explained away as a result of a report that was carried in The Sunday Business Post. This issue has not been managed properly and lessons must be learned in this regard. I welcome the Minister's statement earlier today to the effect that this issue was unique and he is not contemplating that this will affect one in four credit unions across the State. Indeed it is unlikely that other credit unions will be dipping into State funds in respect of restructuring in the future, where necessary.

However, I have been alarmed by the contents of the affidavit under the heading stating liquidation is not in the public interest. The affidavit explains the reason for this and refers to Newbridge Credit Union not being systemically important. Indeed, it goes on to state that the overall size of the credit union sector is not of a size to generate serious systemic issues in Ireland under normal circumstances. Consequently, the credit union is not systemically important and it then only becomes an issue because the Central Bank starts to tease out that the credit unions have €7.1 billion in deposits in the banks and were an issue to arise with Newbridge Credit Union, it could fall onto other credit unions and then those credit unions would withdraw their money from the banks. My problem with this is it appears to be not about the credit union sector itself or its democratic importance and the role it plays in Ireland, but actually about the impact it will have on the banks. In fact, it is about saving the banks at all times.

As for moneylenders, I welcome the reference in the motion, as Members are aware that people are being driven into the hands of moneylenders. They will have noted that 25% of customers have experienced difficulties in making repayments in the past 18 months with 63% of those reporting that repayment difficulties were caused by a drop in household income. While many people are accessing credit from moneylenders or credit unions simply to try to get by and pay bills, I note I have brought forward legislation on this issue previously. In 2012, some 46 moneylenders were licensed in this State, of which 29 charged an annual percentage rate, APR, of more than 100%, 14 charged APRs of more than 150% and one moneylender charged an interest rate of 210%.

In conclusion, I refer to the hope mentioned by the previous speaker. I believe this country needs a good dose of hope because sometimes, the only thing that keeps people going is the hope they will see the light at the end of the tunnel. Many small to medium-sized enterprises and individuals have been clinging onto that hope and hopefully it will be realised in a real fashion and these people and enterprises will see the light sooner rather than later and will see clarity and real tangible support at the end of a long dark road. However, as for welcoming the Minister's statements on the State bank or the National Pensions Reserve Fund, to borrow a phrase, one cannot rely on statements. Three years on, that money is still lying in the National Pensions Reserve Fund. A bank has been liquidated, other banks have been merged and banks have withdrawn from the State but yet, three years later, more than €6 billion is lying in the National Pensions Reserve Fund and Members still only have promises in manifestoes and statements from the Minister. It is past time to act.

9:45 pm

Photo of Jonathan O'BrienJonathan O'Brien (Cork North Central, Sinn Fein)
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Since my election, there has been much talk about those high-technology jobs for which multinationals are crying out. One should remember the economy and jobs across this island are predominantly to be found in the SME sector. I understand that 99% of all companies registered and approximately 78% of all employment can be found within the SME sector. In essence, this is a nation of small businesses and sole traders. If one looks back at the economic collapse in 2007 and 2008, the policy and political decisions by the previous Government and its successor have prolonged that recession and have undermined the environment in which the SME sector must recover. That sector faced what one might call the perfect storm, in that there was a lack of credit, a recession and a stagnating domestic economy. If one looks back over the past five or six years, it is clear there was some collateral fallout as a result of the policies that were implemented. Nothing was done to harness those sections of enterprise that were productive, such as the entrepreneurs and the manufacturing sector and as a result, the number of business closures increased, as did the rate of unemployment.

We would agree that credit is the lifeblood of the small and medium enterprise sector, SME. It provides working capital, finances to get over lean periods in businesses and a stimulus to enable the SME sector to grow. The drying up of credit due to the banking collapse a number of years ago placed an immediate pressure on the SME sector. Scores of viable businesses went to the wall as a result of the economic collapse. No capital was available, there was no lending and no credit was being made available for small businesses and sole traders to help navigate their way through the economic collapse. In the lead-up to the banking collapse and consequent economic collapse many small businesses were advised to diversify into new areas and expand their businesses. When the collapse occurred, many of those companies were faced with huge property debts and, as a result, some of them went to the wall.

The over-reliance by the previous Government and this Government on export-driven recovery ignores the reality that the majority of SMEs rely on the domestic economy to survive and flourish. The continuing policy of austerity in terms of not stimulating the domestic economy is one of the reasons the sector is still in trouble and needs a helping hand. It is poisoning the very environment the SME sector needs to help drive economic recovery.

The Government is in denial having regard to the some of the announcements it has made. I am sure the Minister can point to some of the targets he has set out and say we are meeting them, but much of the funding that has been made available is roll-over funding. The Credit Review Office found that in 55% of the cases where credit was refused, it was wrongly refused. It is clear that the banks are still refusing to give credit.

We had the establishment of Microfinance Ireland and it was claimed that it would deliver a loans programme of approximately €90 million in addition to creating 7,700 jobs over the next ten years. In the first year alone its set-up and running costs have been in excess of €1.1 million and it has only delivered €1.6 million in loans to 107 enterprises throughout the State. If one considers those enterprises that have been lent money, there are great geographical differences in terms of where the money is being spent. Donegal has not received any funds despite a number of companies there having applied for funding. The Government needs to focus on the geographic spread in this respect.

It was promised that the loan guarantee scheme would provide lending of up to €150 million per year. To date, the lending figure has been in the region of €6 million, most of which has been for working capital therefore has not been invested in growth. Much assistance and many policy and political decisions need to be made in the short term to help our economic recovery in terms of the SME sector.

9:55 pm

Photo of John HalliganJohn Halligan (Waterford, Independent)
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I compliment Fianna Fáil on tabling an excellent Private Members' motion. As I do not have as much time to speak on it as I would like, I will concentrate on the SME sector in terms of sustaining economic recovery and supporting job creation. Almost 1,600 SMEs went to the wall over a period of two and half years, and it is estimated that another 800 to 900 are struggling. Coincidentally, before I knew this motion would come before the Dáil, last week I met a number of people representing small to medium enterprises in Waterford and they told me of difficulty they have in getting footfall into businesses and in accessing finance to sustain or grow their businesses. All SMEs would say that high rent, high rates and having to pay wages are the big worries they have, but they would add to those the word "austerity".

A firm in Waterford, Kellys, which had been in business since the Famine, has closed. It was able to beat the Famine but it could not beat this recession. The manager of that firm said it comes down to footfall. People are not coming in because they simply do not have the money. He believes the final nail in the coffin was the property tax which has meant people have had to cut back more.

Deputy Doherty spoke about how the banks drooled over many of these firms in the good times and fired money out to them, but now they are being drilled into, as it were. I have spoken to people in small businesses and they have told me it is almost impossible for them to get funding from the banks. The banks send them questionnaires and proposals as to how the businesses can save money. Some of the proposals recommending that jobs be cut are outrageous. I know of one small firm in which the husband and wife are the only ones left working, and they work 70 to 80 hours a week. They are at the end of their tether. They have had to let go the one person they employed. They have to do the accounts and all other aspects of the business. They have told me that they might make it to Christmas but they do not know if they will. They do not have money. They went to their bank and asked if it could help them through but were told it could not because it does not see their business as being viable because there are only two of them, they are struggling, they have had to let people go and it does not know if their business will survive. They are in a catch-22 situation or a vicious circle where they need a few bob to get them through and the bank does not see them as being viable. It is not their fault they are in this position. People do not support their business because they do not have the money to do so.

There is also a knock-on effect with the quality of working conditions. There is less money, fewer hours and less spending because austerity affects the people's quality of life. Many small businesses are restricted to paying the minimum wage. They will say that is all they can pay. Therefore, their workers are unhappy and barely struggling. Some of them use the minimum hours contracts where one is signed up for perhaps four hours and one is almost a slave to the company, which is no fault of the company because it is struggling. Those people cannot sign on social welfare and they have very little wages over the week. They in turn cannot spend money in SMEs and that is the vicious circle that continues.

I accept it would be difficult for the Minister to do this but it would be worthwhile if he were to pop into small businesses and ask them what the problem is and they will respond by saying it is rent, rates, wages and austerity. I am not making an ideological argument that it all comes down to austerity. People will tell the Minister that because there is less spending in the economy, there is less spending in businesses and that has a knock-on effect. I refer again to the 1,600 businesses that have gone to the wall and the many more that are struggling. They are seeking new measures, incentives and ideas that can help them through, but one cannot beat an input of financial backing. I refer again to that small company that might go to the wall after Christmas which probably could survive if it had a little bit of help from the bank that tells them it is not doing well. If that is the response banks give to SMEs because very many of them are not doing well, they have no hope of getting finance. Where will that leave us?

Debate adjourned.

The Dáil adjourned at 9.20 p.m. until 9.30 a.m. on Wednesday, 13 November 2013.