Paul Kehoe (Wexford, Fine Gael)
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Question 284: To ask the Minister for Finance if he is satisfied that the banks at present are functioning as they should be; the instructions he issued to the directors that he placed on the boards of the banks (details supplied); and if he will make a statement on the matter. [31294/09]

Brian Lenihan Jnr (Dublin West, Fianna Fail)
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The banking system is not functioning as it should be and today I am introducing major new legislation to address this issue. To deal with credit specifically, the Deputy will be aware that a core Government objective is to free up lending on a commercial basis into the economy to support economic growth and a number of actions have been taken to achieve this objective. In the context of the bank guarantee scheme and recapitalisation the banks have made important commitments to support business lending.

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. The Financial Regulator have been monitoring compliance with this commitment and no issues have arisen requiring attention. Officials from my Department are also in regular contact with the banks concerned in relation to their progress on implementing these measures.

The Mazars Review of SME lending showed that demand had fallen sharply, with the value of new applications for credit down by 42%. Stock of credit remained static, indicating that new credits matched repayments. I understand that in a normal year, 15% to 20% of outstanding credit might be repaid, so that significant lending must take place, even to keep the figure constant. There has been much comment on cases of refusal of credit by banks. The Review found that refusal rates vary markedly by sector from 6% to 48% according to the SMEs surveyed. This finding clearly contradicts the allegation of a blanket refusal to lend. Mazars also examined a sample of files where credit was refused and found that, in general, "refusal seemed reasonable in the context of normal commercial and business criteria."

Looking to the future, my colleague the Tánaiste and Minister for Enterprise, Trade and Employment has set up a Clearing Group including representatives from the main banks, business interests and state agencies, which is chaired by her Department. The purpose of the group is 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. As part of the ongoing work of the Clearing Group, the Department of Enterprise, Trade and Employment is calling for submissions from viable businesses that have been refused credit by banks. Such businesses, where the flow of credit appears to be blocked, can now send their details to a dedicated e-mail contact point at the Department.

Although the Group cannot act as an appeal mechanism for individual cases of credit refusal, it is charged with seeking to identify credit supply solutions relating to any patterns identified. Information provided by businesses will inform and assist this work. The e-mail contact for submissions to the Credit Supply Clearing Group is creditsupplyclearinggroup@entemp.ie With regard to using my influence through the two public interest directors, the Deputy should be aware that those non-executive Directors appointed in the public interest are treated the same under company law as other directors. Their fiduciary responsibility is to the company and I would stress that these directors do not have a reporting relationship to me or to my Department.