Written answers

Thursday, 3 December 2009

Department of Finance

National Asset Management Agency

5:00 am

Photo of Kieran O'DonnellKieran O'Donnell (Limerick East, Fine Gael)
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Question 122: To ask the Minister for Finance his views on the confirmation that certain financial institutions covered under the National Asset Management Agency may not be using the NAMA bonds to obtain low interest credit from the European Central Bank for use in lending to small business; if he intends to issue guidance to the institutions regarding this matter; the alternative plans in place for providing credit to small business; and if he will make a statement on the matter. [45284/09]

Photo of Brian Lenihan JnrBrian Lenihan Jnr (Dublin West, Fianna Fail)
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My understanding is that the financial institutions in question expressed the view that there is not a shortage of credit available to business but that the risks taken by financial institutions must be compatible with the amount of capital they hold. Banks can currently access funds but the cost is higher than was previously the case. The banks' balance sheets will be stronger once NAMA has taken over the riskiest loans and replaced them with Government guaranteed bonds; this will give the banks greater access to liquidity and make long-term funding cheaper.

I would point out that the value of the NAMA bonds will far exceed the incremental borrowing requirements of business and it would not be realistic to expect all of this money to be loaned on. However, it is fair to assume that the banks should be in a better position to lend once the riskiest loans have been removed from their balance sheets and that viable businesses should expect a fair hearing when seeking funding. I intend to issue guidelines to participating institutions to ensure that this is the case. 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.

An independent review of credit availability was agreed in the context of the recapitalisation of AIB and Bank of Ireland. The purpose of the review was to ascertain the position on credit availability to SMEs in Ireland. The Steering Group for the review consisted of representatives of the Departments of Finance and Enterprise, Trade and Employment, Forfás, Enterprise Ireland, the Irish Banking Federation and the six main banks involved in lending to SMEs, business representatives from ISME, Chambers Ireland and Small Firms Association. The final report of the Review of Lending to SMEs is available on my Department's website. The report made a series of recommendations including the further development of a framework for monitoring credit availability and measures to improve communications between the banks and SMEs. The report also suggests consideration of specific supports to ease the working capital requirements of SMEs, and measures to help investment levels in SMEs. A follow-up independent review of credit availability is currently underway and it is expected that it will be published shortly.

I would also point out that 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 facilitates access to credit, promotes fairness and transparency and ensures 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 is being monitored by the Financial Regulator.

My colleague the Tánaiste and Minister for Enterprise, Trade and Employment 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.

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