Lorraine Higgins (Labour) | Oireachtas source

I welcome the Minister of State to the House to hear our views on the SME sector in Ireland and what we think should be done to ensure the sector becomes the engine room of Ireland's recovery. It is a suitable portfolio for the Minister of State given his background and I commend him on all the work he has done in the area thus far. This issue has been widely discussed in the past by my Labour Party colleagues and I, and we feel strongly about addressing some of the situations already mentioned in the debate. Earlier this year we tabled a motion in the House to seek business supports for the sector. In this regard I commend my party colleagues and all Senators who contributed to that debate. We need foresight and unanimity to make any real progression in the sector.

I want to make clear I have a special affiliation with the SME sector as my parents own small enterprises in Athenry, County Galway. They are no different to any other business owners in the country who operate in small towns and do their best, employing people and helping to generate economic activity. They helped Ireland during the recession in the 1980s and the sector is trying to do the same thing in these times in very difficult circumstances. However, there is a fundamental difference between the 1980s in small-town Ireland and now. While people did not have huge turnovers in their businesses in the 1980s it is also true to say they did not have significant borrowings either. However, in the recent past business people fell victim to the aggressive marketing of banks, the lax application of banking regulations and no governmental intervention at the time. As a consequence they are now playing roulette with their livelihoods.

In my home town of Athenry more than 30 commercial units in the middle of the town are vacant. As a result there is no significant economic activity, no jobs are being created and there is no buzz in the place. Instead it is a satellite town and it is harrowing when I compare it to the time of my childhood. Athenry is by no means unique and this is indicative of what is happening throughout the country.

We must identify the crux of the problem and I wish to highlight the utterly negative situation in the country. Now more than ever we need those with an entrepreneurial spark and verve to feel encouraged to follow their business dream. The current situation in the banking industry is counter-productive in that some are effectively not operational as banks. Individuals with good credit histories have contacted me because when they sought loans to buy properties they were offered between 50% to 70% of the loan to value and in one instance the person was told the bank was not really lending and asked to return the following year when it would be in the market for loans. This is incredible. These are the same banks which were bailed out by taxpayers, the very people who cannot now get access to finance to help restart the economy. Irish banks must realise they must play their part in the recovery and adopt some patriotic initiative in this regard.

Perhaps I will not convince anyone with what I have said about my experience in the constituency, but the statistics tell their own story. Irish SMEs have a loan rejection rate second only to Greece in the eurozone at 24% of loan applications. Correspondingly, it is important to point out that the average rejection rate in the 17 member countries of the single currency area is 12%. This makes it twice as difficult for the sector to get finance in Ireland as it is elsewhere in the European Union. Not only this, Ireland can also perversely boast of having the second highest level of discouraged borrowers, which means firms do not apply for loans even though they may need credit and, in any case, if they are lucky enough to secure a loan, the terms and conditions applied to new credit in Ireland are among some of the worst in the EU.

What is more perturbing is that recently the Credit Review Office received a number of eligible applications from SMEs which had been refused credit by AIB and Bank of Ireland, the two pillar banks. Of the 21 cases completed in the quarter, 14 bank refusals were overturned resulting in the two banks subsequently supplying ¤1.18 million of credit supporting a further 106 full and part-time jobs in the SME sector. Lending to non-financial non-property related SMEs by Irish resident credit institutions reduced by ¤390 million over the second quarter of this year and by ¤1.2 billion over the year to the end of June. This follows an annual decline of 6.3% in the year to the end of March 2012.

If the banks are reluctant to reverse their current rule of thumb and associated trends then I respectfully ask that the Minister of State establish a special working group in conjunction with the Department of Finance to explore the possibility and feasibility of providing similar loan to value arrangements for the SME sector as that available to residential mortgage customers. Acquiring 92% finance for commercial properties would make a huge difference to those seeking loans in that they would not be left with a cliff to climb to make their business dreams a reality. Mortgages of 92% for commercial properties would give a timely boost to the SME sector which, in turn, would allow new businesses open and thus generate economic activity in small rural towns.

It makes sense to buy property now given the massive correction in the market, and all that is stopping us from kick-starting this are the banks. If they are reluctant and dismissive of such approaches then it may very well be time for the Government to examine the establishment of banks similar to the former ICC and ACC which targeted the important sectors in Irish business as a way of generating economic growth. Ireland needs answers and solutions and we do not need excuses. Let us also look at the huge stock in NAMA's possession. NAMA should be required to publish a full and detailed list of all property currently on its books and indicate the market prices of these properties. Having property in its custody on behalf of the taxpayer and incurring security and maintenance costs associated with them is a fruitless exercise and does not make financial sense.

As a way of countenancing the lack of lending to those who want to start up a business, NAMA needs to explore the possibility of providing rent-to-buy deals. I fail to see how it can lose. It would be a win-win scenario for all concerned. It would solve a huge headache for NAMA in terms of associated property costs and a huge problem for individuals seeking to set up their own businesses as it would give them the opportunity to prove to the mainstream banks that they are capable of financing any such loan as they will be paying rent.