Dominic Hannigan (Meath East, Labour)
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Question 163: To ask the Minister for Finance the steps he is taking to ensure that banks make credit available to small and medium enterprises; and if he will make a statement on the matter. [11142/12]

Michael Noonan (Limerick City, Fine Gael)
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As the Deputy is aware, the banking system restructuring plan creates capacity for the two Pillar Banks, Bank of Ireland and AIB, to provide lending in excess of €30 billion in the next three years. SME and new mortgage lending for these banks is expected to be in the range of €16-20bn over this period. This lending capacity is incorporated into the banks' deleveraging plans which allow for repayment of Central Bank funding through asset run-off and disposals over the period to 2013. The Government has imposed lending targets on the two domestic pillar banks for the three calendar years, 2011 to 2013. Both banks were required to sanction lending of at least €3 billion in 2011, €3.5 billion this year and €4 billion in 2013 for new or increased credit facilities to SMEs. The pillar banks are required to submit their lending plans to the Department and the Credit Review Office (CRO) at the beginning of each year, outlining how they intend to achieve their lending targets. The banks also meet with the Department and the CRO on a quarterly basis to discuss progress.

I can confirm that both banks have reported to me that they have achieved their 2011 targets. This information is currently being independently assessed by Mr John Trethowan of the CRO and will be dealt with in his quarterly report for end December 2011 which is due to be published shortly. The function of oversight by the CRO applies to AIB and Bank of Ireland. SMEs, sole traders or farmers can apply for a review where credit is refused, withdrawn, or offered on unreasonable conditions. Banks have set up formal internal review processes, which must first examine an appeal by a customer. Ulster Bank has also set up an internal appeal process. The CRO ensures that the pillar banks do not refuse credit to viable businesses, both by its existence and by offering the right to a review of refusals.

On 4 November last the Central Bank published a revised statutory Code of Conduct for Business Lending to Small and Medium Enterprises (SME Code) setting out new requirements for lenders when dealing with SMEs in, or facing, financial difficulties which came into effect from 1 January 2012. A full review of the SME Code will be undertaken in 2012.

The Department of Jobs, Enterprise and Innovation brought the draft heads of a Loan Guarantee Scheme Bill to Government on 24 November last. The Scheme will provide a partial guarantee to banks against losses on qualifying loans to job-creating firms to get banks lending again to industry and entrepreneurs. This Scheme will be closely targeted at commercially viable, well performing companies that have a solid business plan and a defined market for their products or services which can demonstrate repayment capacity for the additional credit facilities but which cannot secure credit facilities due to either of the following two market failures:

· Insufficient collateral for the additional facilities or,

· Growth / expansionary SMEs which due to their sectors, markets or

business model are perceived higher risk under current credit risk evaluation practices.

The Scheme is expected to go live in Quarter 2 of 2012 following enactment of the legislation.

The Government has also approved the establishment of a Micro Finance Loan Fund to provide loans on a commercial basis for start-up businesses and micro-enterprises. It is expected that the businesses that will primarily benefit will be those at the margins of commercial lending decisions. The Scheme will use an initial exchequer investment of €10million to leverage further funds from private sources. Over a ten year period, the scheme has the potential to provide up to €100million in additional lending to over 5000 micro-enterprises over that period. The Scheme will be demand-led and the amount of funds provided will depend on the demand from viable businesses.

As the Deputy knows, I published the independent Mazars survey of SME credit late last year. On foot of this report, a series of seven regional meetings with local representatives is now underway, hosted by the Minister for Small Business, John Perry T.D., supported by Mr John Moran, Head of Banking in the Department of Finance. The aim of these meetings is to examine further the actions which might be taken by the Government to improve access to credit for SMEs. All of these measures are, of course, underpinned by the initiatives outlined in the Government's recently published Action Plan on Jobs which recognises the importance that access to finance for SMEs will play in the implementation of strategies announced in the Plan.