Written answers

Wednesday, 3 February 2010

Department of Finance

Credit Availability

9:00 pm

Photo of Bernard DurkanBernard Durkan (Kildare North, Fine Gael)
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Question 202: To ask the Minister for Finance if a specific request has been made to the lending agencies to facilitate first-time home buyers; the response to such requests; and if he will make a statement on the matter. [5563/10]

Photo of Brian Lenihan JnrBrian Lenihan Jnr (Dublin West, Fianna Fail)
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As part of the recapitalisation package announced on 11 February 2009, Allied Irish Bank and Bank of Ireland reconfirmed their December 2008 commitment to increase lending capacity to provide an additional 30% capacity for lending to first time buyers last year. AIB and Bank of Ireland have also committed to public campaigns to actively promote mortgage lending at competitive rates with increased transparency on the criteria to be met. The Financial Regulator has been monitoring compliance with this commitment and no issues have arisen requiring attention. I note from the most recent IBF/PWC mortgage market profile — providing data up to the third quarter of 2009 — that the number of loans issued to first time buyers increased for the second successive quarter.

Photo of Bernard DurkanBernard Durkan (Kildare North, Fine Gael)
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Question 203: To ask the Minister for Finance when it is expected that the traditional lending and borrowing criteria will again become operational with particular reference to the need for the banking system to reciprocate following the Government and taxpayers' guarantee; the efforts he has made to bring about a restoration of such practices; and if he will make a statement on the matter. [5564/10]

Photo of Brian Lenihan JnrBrian Lenihan Jnr (Dublin West, Fianna Fail)
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The second Mazars report on credit availability, published in December, confirmed that while some SMEs are facing significant challenges accessing credit, and the sector in general is more conservative in its borrowing, nevertheless new lending is still taking place. However, the proportion refused credit, especially in certain sectors, remains a concern for Government.

With regard to mortgages, while the latest statistics from the Irish Banking Federation for the third quarter of 2009 shows little change from the previous quarter, the rate of decline in activity that has been evident over recent quarters now appears to be moderating. I would point out that many lenders are conducting extensive advertising campaigns, showing that competition is a real factor on the mortgage scene. The existence of that level of competition in the mortgage lending market is sufficient, I believe, to ensure that credit institutions will lend to suitable qualified customers in order to remain competitive and retain their share of the market.

The Government has taken a number of significant measures to help ensure access to credit for businesses and access to mortgages for homebuyers. Under the NAMA legislation I will shortly be issuing guidelines to all banks participating in NAMA who lend to SMEs, to ensure that SMEs, sole traders and farm enterprises will have recourse to an independent, external review of decisions of credit refusal by the banks. The purpose of this measure is to ensure that the benefits of NAMA lead to an improved flow of credit to viable businesses. I hope that banks not participating in NAMA or covered by the Government guarantee will also decide to participate. My aim is to have a simple, effective review process, run by people with experience and credibility. The banks must comply with the recommendations of the review process, or explain why they cannot do so.

In addition to dealing with individual cases, the credit review system will examine the credit policies and practices of the banks in respect of SMEs. This will help me to decide what further action might be necessary to secure the flow of credit. I intend to publish the analysis from the review process so that the performance of the banks participating in NAMA will be clear to all.

Mr John Trethowan, an experienced banker with a demonstrated commitment to public and social service, is overseeing the establishment of this credit review system with initial administrative support from Enterprise Ireland. Work has been ongoing since December on the logistical aspects of the review system and it is envisaged that this will be completed shortly.

A Code of Conduct for Business Lending to Small and Medium Enterprises took effect last 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 last February, Allied Irish Bank and Bank of Ireland reconfirmed their December 2008 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 was not taken up, then the extra capacity was to be made 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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