Michael McGrath (Cork South Central, Fianna Fail)
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89. To ask the Minister for Finance his views on comments by the Governor of the Central Bank of Ireland, Mr. Patrick Honohan, that Irish banks remain too risk averse; his plans, in policy terms, to encourage greater competition in the banking sector; and if he will make a statement on the matter. [39985/15]

Michael Noonan (Limerick City, Fine Gael)
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I assume the Deputy is referring to the comments made by Governor Honohan at the Small Firms Association annual lunch on 6 November last in the context of SME lending. In relation to the question of banks being risk averse, I would draw the Deputy's attention to the recently published Department of Finance SME Credit Demand Survey April - September 2015 ). A total of 1,500 telephone interviews were conducted with a random sample of Irish micro, small and medium SMEs. The survey shows that, when pending applications are excluded, 85% of credit applications to banks were approved or partially approved.

In addition, both AIB and Bank of Ireland have increased new lending significantly year on year. Bank of Ireland recently announced new credit approvals for Irish businesses to the end of September 2015 of €3.6 billion, up c.13% on the same period last year. Permanent TSB have also recently commenced lending to SMEs. The Credit Review Office (CRO) continues to review loan applications which have been rejected by the banks and is overturning 55% of appeals. I would encourage any SME who has had a credit application declined to avail of the services of the CRO ().

In relation to encouraging greater competition in the banking sector, the Strategic Banking Corporation of Ireland's (SBCI) mandate and objectives include the fostering and driving of competition in SME lending through the provision of low cost long term funding to both banks and non-bank providers of credit to SMEs. In doing so, it seeks to facilitate the growth of smaller participants and the entry of new market participants by providing them with the low cost liquidity that will enable them to compete with the larger banks.  SBCI funding is offered on substantially the same terms and the same price to all SME credit providers that are credible, credit worthy, can meet its operational requirements and pass on the benefit of the lower cost funding to their SME clients. This creates a new forum for competition in the use of SBCI funding between banks and non-banks and enables emerging and newly entering SME credit platforms to grow their businesses. Over 3,200 Irish SMEs benefited from SBCI loans in the SBCI's first seven months in operation (March to September 2015), borrowing €110 million in total through AIB and Bank of Ireland.

More recently, the SBCI has announced its support for two strong emerging non-bank providers of credit to SMEs with a €50 million facility now up and running with Finance Ireland, a provider of leasing and hire purchase financing for vehicles and equipment and a €25 million facility with Merrion Fleet, which provides vehicles and fleet management services to SMEs at a lower cost. Furthermore the SBCI has a pipeline of new SME credit providers that it intends to bring to the market over the next six months and beyond, which will further enhance competition and support new types of finance in the market. Further details of the SBCI's current supported products and where they may be accessed are available on its website ).

The counter-guarantee amendments being brought forward by the Department of Jobs, Enterprise and Innovation to the Credit Guarantee Amendment Bill (2015) are intended to enable the leveraging of related EU financial instruments in this area, such as the European programme for competitiveness of SMEs, COSME; Horizon 2020 funding earmarked for SMEs; and the European fund for strategic investment, EFSI, administered by the European Investment Bank and European Investment Fund, better known as the Juncker plan. This will allow Ireland to optimise its return from such major EU initiatives.

As regards interest rates charged by the banks to SMEs, the recent CBI publication, "Microfinancial Review 2015:1", states that "the mean rate on SME loans during 2014 was 5 per cent in Ireland, compared to 3.5 per cent in the euro area." However, the report goes on to note that "differences in the underlying lending composition, however, may be a factor here. For example, the data include restructured and renegotiated loans, of which there is likely to be an increasing share in Ireland. Cross-country differences are also likely in terms of loan type and borrower type." It should be noted that in the most recent Department of Finance SME credit demand survey, covering the six month period to September 2015, only 1% of SMEs that did not demand credit thought that it was too expensive to borrow.

Finally, I believe that competition is the best way to achieve a sustainable long term solution to the issue of high mortgage repayments and the Government has undertaken a number of initiatives in order to promote competition in the market. For example, it introduced the changes to Section 149 of the Consumer Credit Act 1995 in the Central Bank (Supervision and Enforcement Act) 2013 for new entrants. This section regulates fees and charges and the changes mean that it does not apply for the first three years of operation of new entrants to the Irish banking sector. It is anticipated that new entrants will enter the mortgage market and bring welcome competition to this sector.