Written answers

Wednesday, 13 May 2009

Department of Finance

Financial Institutions Support Scheme

9:00 pm

Photo of Michael D HigginsMichael D Higgins (Galway West, Labour)
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Question 123: To ask the Minister for Finance his views on reports that a credit institution covered by the bank guarantee is paying significant bonuses to its front office staff. [18948/09]

Photo of Brian Lenihan JnrBrian Lenihan Jnr (Dublin West, Fianna Fail)
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Paragraph 47 of the Credit Institutions (Financial Support) Scheme 2008 provides that bonuses for directors or senior executives must be measurably linked to reductions in guarantee charges, reduction in excessive risk-taking and encouraging the long-term sustainability of the covered institutions. The Deputy will appreciate that the terms of the scheme relate in this regard only to directors and senior executives and would not apply to the front office staff to whom he refers.

However, I am aware that the institution in question has previously announced that due to the business performance of the group this year, it would not be awarding any performance bonuses to executives and managers. Furthermore, it also announced that it would not be awarding any performance bonuses to staff. Both of these announcements apply to executives, managers and staff working in the relevant division.

Photo of Pat RabbittePat Rabbitte (Dublin South West, Labour)
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Question 124: To ask the Minister for Finance his views on the write-downs recently announced by a bank (details supplied) on its commercial property and development loan book; his further views on whether credit institutions covered by the bank guarantee may suffer write-downs to their commercial property and development loan books of a similar or greater magnitude; and if he will make a statement on the matter. [18979/09]

Photo of Brian Lenihan JnrBrian Lenihan Jnr (Dublin West, Fianna Fail)
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I have noted the write downs on commercial property and the development loan book in the institution referred to by the Deputy for the first quarter 2009. These write-downs led to loan loss impairments of €198m. This figure is specific to the institution concerned and it would be inappropriate for me to comment.

With regard to the institutions covered by the Government guarantee, it is widely known that the value of their commercial property and development loan books has declined. The institutions themselves have acknowledged this through the setting aside of impairment provisions. While the degree of exposure to commercial and development property varies greatly amongst the covered institutions, it is a matter for the Board of each institution to evaluate its loan book and make appropriate provisions.

The Deputy will be aware that banks will have to take an appropriate write-down in value of loans transferred to NAMA taking account of NAMA's objective, which is to operate commercially and optimise the return on such loans over time. While the initial write down of loans may have an effect on the banks' capital, there also will be a reduction in risk weighted assets as a result of the transfer of the loans to NAMA. The setting up of NAMA and transferring the more difficult asset portfolio to it will leave the banks in a stronger position to lend to the real economy and to make profits which will facilitate increases in the banks' capital bases over time.

Photo of Bernard DurkanBernard Durkan (Kildare North, Fine Gael)
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Question 125: To ask the Minister for Finance the extent to which he has been able to influence the banking sector to return to traditional banking and lending policies having particular regard to the restoration of public confidence in the banking system; and if he will make a statement on the matter. [18995/09]

Photo of Brian Lenihan JnrBrian Lenihan Jnr (Dublin West, Fianna Fail)
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A core Government objective is to free up lending on a commercial basis into the economy to support economic growth. In the context of the bank guarantee scheme and recapitalisation the banks have made important commitments to support business lending.

A Code of Conduct for Business Lending to Small and Medium Enterprises was published by the Financial Regulator on 13 February and took effect on 13 March. This code applies to all regulated banks and building societies and will facilitate access to credit, promote fairness and transparency and ensure that banks will assist borrowers in meeting their obligations, or otherwise deal with an arrears situation in an orderly and appropriate manner. The business lending code includes a requirement for banks to offer their business customers annual review meetings, to inform customers of the basis for decisions made and to have written procedures for the proper handling of complaints. Where a customer gets into difficulty the banks will give the customer reasonable time and seek to agree an approach to resolve problems and to provide appropriate advice. This is a statutory code and banks will be required to demonstrate compliance.

In addition, as part of the recapitalisation package announced on 11 February, Allied Irish Bank and Bank of Ireland reconfirmed their December commitment to increase lending capacity to small and medium enterprises (SMEs) by 10% and to provide an additional 30% capacity for lending to first time buyers in 2009. If the mortgage lending is not taken up, then the extra capacity will be available to SMEs. AIB and Bank of Ireland have also committed to public campaigns to actively promote small business lending at competitive rates with increased transparency on the criteria to be met. Compliance with this commitment will be monitored by the Financial Regulator. The banks make quarterly reports, with the first reports to end-March 2009 to hand. Officials from my Department are also in regular contact with the banks concerned in relation to their progress on implementing these measures.

Furthermore, the banks have agreed to engage in a 'clearing group' chaired by a Government representative and including representation from business interests and State agencies. The purpose of this group will be to identify specific patterns of events or cases where the flow of credit to viable businesses appears to be blocked and to seek to identify credit supply solutions. Any questions on the clearing group should be directed to my colleague the Tánaiste and Minister for Enterprise, Trade and Employment.

An independent review of credit availability, funded by the banks but managed jointly by the banks, Government and business representatives is also under way and will be completed shortly. Among the issues covered by this review will be changes in bank lending, repayment terms and a comparison with customer experiences prior to the onset of the financial crisis. I am satisfied that this review, along with the quarterly reports from the recapitalised institutions, will give a clear picture regarding the flow of credit in the Irish economy which will inform future policy.

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