Bernard Durkan (Kildare North, Fine Gael)
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Question 108: To ask the Minister for Finance when he expects the banks to be in a position to provide the necessary working capital to the business community in agriculture, industry and the commercial or services sectors; and if he will make a statement on the matter. [17554/10]

Bernard Durkan (Kildare North, Fine Gael)
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Question 109: To ask the Minister for Finance when he expects traditional banking, borrowing and lending practices to be restored; and if he will make a statement on the matter. [17555/10]

Brian Lenihan Jnr (Dublin West, Fianna Fail)
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I propose to take Questions Nos. 108 and 109 together.

I announced earlier this month under the NAMA Act that AIB and Bank of Ireland are to make available a minimum of €3 billion each for new or increased credit facilities, including working capital targeted at SMEs, in the real economy in the next two years. Both Bank of Ireland and AIB are required to prepare a SME lending plan, broken down by sector and geography for submission to my Department by 12 May. Both banks are expected to make the credit available immediately and should not wait until the plans are submitted. These plans will be reviewed and if it is clear that it is necessary, I will introduce a Statutory Instrument under the NAMA legislation to ensure that lending takes place into the economy.

Further measures to assist the availability of credit for SMEs include: the requirement that the two largest banks provide €20 million each for seed capital to Enterprise Ireland supported projects; the requirement that the two banks each set up an additional €100 million fund for Environmental; Clean Energy and Innovation projects; the requirement that the banks commit to working with Enterprise Ireland and the IBF to develop sectoral expertise in the modern growth sectors; the requirement that they explore with Enterprise Ireland and the IBF how best to develop the range of banking services that Irish SMEs trading internationally will need, and the requirement to develop expertise and credit products in areas where cashflow rather than assets is the basis for lending.

The Financial Regulator has set down capital requirements for each of the banks. Bank of Ireland has already begun to implement its plan to raise €3.4 billion of capital and it was encouraging that the share placing earlier this week was nearly four times oversubscribed. Allied Irish Bank has announced that it is selling assets to raise capital. As I have outlined previously the State is willing to convert some or all of its preference shares, as required, on terms to be agreed that will provide full value for the taxpayer. The combination of cleansed balance sheets, following the removal of the riskiest loans by NAMA, and recapitalisation will put the banks in a stronger position to access liquidity, secure funding and increase lending.

I consider that the banks are in a position to lend to viable businesses and the recent Mazars report on lending to SMEs, which covers the period from October to December 2009, showed that credit applications in number and value terms rose slightly in the last quarter of 2009 over the previous quarter, which is encouraging. The level of applications for credit would appear to be stabilising and Mazars also reported a small improvement in the overall credit approval rate. However, the reduction in the stock of credit, as repayments exceed new credit, and in credit quality reported by the banks remains a concern for the Government.

The recently established Credit Review Office is available to review banks' decisions to refuse credit to businesses. It will provide an independent review of the banks' decisions on whether the credit should have been granted or not. It is expected that the existence of the Office will have an effect on the banks' behaviour in relation to credit. Businesses can also seek a review of a decision to reduce or withdraw credit. This should resolve the contentious issue of whether the banks are willing to lend to viable businesses.