Lorraine Higgins (Labour)
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I thank the Minister of State, Deputy John Perry, for taking this matter, which proposes that the Minister for Finance or Central Bank consider granting a new licence to a bank which will concentrate its lending in the farming community.

We all remember the Agricultural Credit Corporation, ACC, which was established by the Government in 1927 for the purpose of financing agricultural development. ACC subsequently developed into ACC Bank and expanded its services to include finance for small and medium-sized businesses. While it was in existence, the bank had loan agreements of up to €310 million with 2,900 farmers and had 1,500 farmers among its 5,000 deposit account customers, who saved up to €110 million. As is clear from these statistics, ACC Bank was instrumental in assisting farmers.

The decision by Rabobank in 2002 to purchase ACC Bank from the State sealed the latter's destiny and it was subsequently announced that ACC Bank would close in 2014. While Rabobank has given an assurance that ACC Bank will continue to hold its loans to the agriculture sector, a significant proportion of the bank's loans are in difficulty and have been outsourced to a collection agency. This development poses obvious threats to farmers and their livelihood and places family farms at risk of repossession. I am most concerned about this prospect.

Worse still, Danske Bank announced some months ago that it will close its branches in Ireland. This means Bank of Ireland and Allied Irish Banks will command 70% of the marketplace, a level of dominance by the two pillars of Irish banking that has not been seen since the 1980s. To further bolster this uneven situation, I understand €100 million from the European Investment Bank is being made available to AIB and its borrowers only. While these funds are welcome, it is most unfortunate that they are being concentrated in a single bank and competition is not being allowed to thrive in the Irish banking industry.

The creation of ACC Bank in the 1980s helped alleviate the problem with banking competition. We are on the verge of a similar problem and people are already suffering from its effects, including higher interest rates. Closing ACC Bank hurt our farmers and business owners. The current state of banking cries out for a new initiative, not only to provide finance to small and medium-sized businesses and farmers but also to become a competitive lever to force the major banks to improve their standards of customer service and financial products.

I propose that the Government consider buying back ACC Bank. If that is not possible in the current economic circumstances, it should explore other avenues, especially given the widespread public support for action in the banking industry. A Government initiative to take back ownership of ACC Bank or establish a similar bank would be welcomed on all fronts. The Government could use some of the resources of the strategic investment fund. This would be in keeping with the investment principles of the fund, which include the provision of commercial investment to support economic growth and jobs, investing in areas of strategic importance and recycling capital to enable continuous investment in new projects.

When the Agricultural Credit Corporation was formed its purpose was to finance agricultural development. The original objectives and culture of ACC Bank, when in State ownership, would still hold good today.

John Perry (Sligo-North Leitrim, Fine Gael)
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I thank Senator Higgins for raising the issue of lending to the farming community. The Government recognises that a strong agriculture sector is vital to our economy and plays a crucial role in employment growth.

A key priority is to ensure an adequate pool of credit is available to fund SMEs, including farms, in the real economy. It should be noted that the agriculture sector has recently shown increases in turnover, profitability and employment according to the Red C demand survey for the period April to September 2013 which was published earlier this week.

As I am sure the Senator is aware, ACC Bank will close all of its branches and business centres to the public and give up its banking licence next year. However, both AIB and Bank of Ireland are expected to lend to viable businesses, including farms. Both banks achieved their SME lending targets in 2011 and 2012. The Credit Review Office is available to assist businesses which have been refused credit and the upheld appeals have resulted in €18.5 million in credit being made available, protecting 1,521 jobs. This shows there is a strong prospect of success for SMEs going to the CRO and businesses refused credit are strongly encouraged to seek a review by the office. In recognition of the crucial role played by the CRO, in the recent budget the Minister for Finance increased the threshold at which SMEs can appeal refusals from €500,000 to €3 million. This will facilitate requests from a broader range of SMEs, as well as large requests for re-financing. It is vital that the banks continue to make credit available to support economic recovery. However, it is not in the interests of 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 sums borrowed.

In June the Government announced its decision to establish the Ireland strategic investment fund which will absorb the National Pensions Reserve Fund and activate the NPRF's €6.4 billion of resources by making them available for investment on a commercial basis to support economic activity and employment in Ireland. The Minister for Finance anticipates the enabling legislation will be enacted early next year. Using the Ireland strategic investment fund, we will maximise our resources to enhance growth in the economy and improve key infrastructure to maintain Ireland's attractiveness as a place in which to do business and create employment. Already in the lifetime of the Government, the NPRF has established funds that support both strategic projects and a number that support SME financing that collectively involve commitments of €375 million. The role of a strategic investment bank over and above the contribution expected from the strategic investment fund will be informed by the requirements of the economy once the Government's key immediate objectives for the repair of the banking system have been completed.

The Taoiseach has indicated to the Dáil that he has held discussions with the German Chancellor, Angela Merkel, and they have agreed that work will be undertaken to find ways to reinforce Ireland's economic recovery by improving funding mechanisms for the real economy, including access to finance for Irish SMEs. The German Government has asked KfW, the German development bank, to work with German and Irish authorities to deliver on this initiative at the earliest possible date. Officials from the Department of Finance have already exchanged working papers on this subject with KfW and the German Ministry of Finance. Discussions with the German ministry have been held in Berlin and a meeting has also been held between Department of Finance officials and KfW personnel. We will be moving forward with this work with KfW and other key stakeholders in the coming weeks both here and abroad.

With support from Chancellor Merkel, the Government's intention is to ensure an effective and successful initiative emerges from the process. We will, therefore, be discussing any and all approaches that meet the strategic objectives of both states and ultimately facilitate lending to the real economy, in particular SMEs in Ireland. Although the precise form and delivery mechanism for any assistance has yet to be agreed, discussions with German colleagues will allow us to consider appropriate options for funding the recovery of the economy in the course of our work with KfW and the German Government.

Lorraine Higgins (Labour)
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I thank the Minister of State for his response. I welcome the positive news about the credit being made available to SMEs and the farming community. However, I urge the Government not to concentrate the funds coming from KfW in the two pillar banks. We need choice in the banking system because a responsible banking sector will only come about as a result of competition. We need more players in the market. By concentrating the KfW funds in the two pillar banks we would create the risk of setting back the banking industry and the sector for years. That would ultimately stunt economic growth. I ask the Minister of State to pass my concerns to the Minister for Finance in order that they can be taken into consideration in discussions that take place in the coming weeks.

John Perry (Sligo-North Leitrim, Fine Gael)
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I will pass on the Senator's concerns to the Minister. There is a clear commitment from the Taoiseach and the Minister regarding the potential for KfW. Equally, however, Bank of Ireland plans a major new initiative for the fourth quarter involving its prominent branch network engaging with farmers at marts. As part of National Enterprise Week, the bank will be holding a series of agriculture credit clinics. In respect of AIB, the edition of Agri Matters for summer and autumn 2013 was circulated to farming customers beginning in August. Agri Mattersis AIB's publication aimed at farming customers and has a circulation of 15,000. Following the launch in July by the Minister for Agriculture, Food and the Marine of AIB's dairy sector report which was prepared in partnership with the Irish Farmers Association, the bank hosted a series of engagements with regional key stakeholders. The budget extended capital gains tax retirement relief to the disposal of farmland in certain circumstances to encourage older farmers to lease their land under long-term arrangements. Relief for young trained farmers was also extended by adding three courses to the list of eligible qualifications. The Government is conscious of the importance of the agri-economy and properly functioning banks.