Lorraine Higgins (Labour) | Oireachtas source

I thank the Minister of State for taking this matter, which is of importance to the recovery of this country. It is the need for a bank to actively lend to the small and medium enterprise sector. This week we were informed by reports in the Irish Independent that lending to small and medium enterprises has declined for each of the past three quarters when lending to farms and property companies is excluded from the figures proffered. This is on top of news from last year, when the Department of Finance told us 24% of small and medium enterprises, SMEs, refused finance were not given any reason and nearly half of applications are taking longer than the Government-recommended 15 days to turn around. These kinds of statistics make me genuinely fear for a lost decade in Irish society, as we have not adequately addressed the deep-seated problems with competition in the banking sector. We need to tackle it head on.

Small and medium enterprises make up 99% of all businesses in this country yet we have a loan rejection rate second only to Greece in the eurozone at 24%. We have the second-highest level of discouraged borrowers and we also have the worst terms and conditions applying to new credit in the EU. If people want a commercial loan or mortgage, they must come up with a 33% deposit in order to get the loan and be approved by the bank, and they also need to pay conveyancing fees not only for their own solicitor but that of the bank as well. Such issues must be addressed very quickly.

We can compare small and medium enterprise lending against best practice in the western world. In most First World countries, lending is proffered on a cash flow basis and not on bricks and mortar security, as continues to be the case in Ireland. As a result of the property crash we must have a major shift in thinking or else we will miss out on the next Facebook or Steve Jobs kind of entrepreneur. Despite AIB and Bank of Ireland giving the Government an undertaking to lend €3.6 billion to small and medium enterprises for 2013, it seems that to a certain degree we are being duped. What may not be obvious to some is that banks include in their calculations restructuring of debt, renewal of season loans and overdraft facilities, changing overdraft facilities into term loans, as well as all agriculture, retail and service loans. The portion relating to the likes of manufacturing is minute in terms of the existing small and medium enterprise book and new finance.

It is clear we need proper banking competition in this country and if we cannot succeed in making those banks bailed out by the Irish people lend to the small and medium enterprise sector in the way they should, we must set up or encourage a new institution to set up here. We need a properly focused business bank that would target more than half of lending on the SME sector and commercial enterprises so we can ensure cash flow businesses are being adequately financed. To give an example, a licence was given to an enterprise called Metro Bank, with over half of its lending targeted at the SME sector only. The Department of Finance and the Central Bank must bear that in mind when they devise policy in the area.

We are letting go opportunities to finance Irish businesses and entrepreneurs, and we are not offering money to people based on the strength of business plans but rather bricks and mortar security, with which I have difficulty. If we do not correct the trend and take remedial action, we will face an issue of paralysis for small and medium enterprises in the country. Without a working banking system, we will not be able to rebuild Ireland. SMEs cater for 99% of all businesses, and they have a real role in revitalising local towns and villages. We must recognise how critical they are for economic development, and we must do everything we can to address what has been inflicted upon them. For that reason I ask the Minister for Finance, in conjunction with the Central Bank, to consider granting a new licence to a business-based bank.