Michael McGrath (Cork South Central, Fianna Fail)
Link to this: Individually | In context | Oireachtas source

16. To ask the Minister for Finance how the State will maximise the proceeds from a future disposal of Allied Irish Banks; how these proceeds will be deployed; his views on the comments by the Governor of the Central Bank of Ireland, Mr. Patrick Honohan, on the lack of competition in the Irish banking sector; if this will influence the sale process for Allied Irish Banks; and if he will make a statement on the matter. [40356/15]

Michael Noonan (Limerick City, Fine Gael)
Link to this: Individually | In context | Oireachtas source

As the Deputy is aware, AIB recently announced that it had received approval from its regulator, the SSM (Single Supervisory Mechanism), for a significant reorganisation of its capital structure. The approved reorganisation involves a number of elements including a redemption of the State's Preference Shares to the value of €1.7 billion in cash, as well as converting the remaining Preference Shares into Ordinary equity. The reorganisation will generate a substantial return of capital for the taxpayer and starts the process of the bank repaying the State for its substantial support.

The reorganisation which involves the removal of non-standard instruments from the bank's balance sheet is a mutually beneficial arrangement. It allows the State to begin monetising its investment in the bank while allowing AIB make clear progress in its journey towards re-emerging as a competitive, investable bank.

Between 2009 and 2011 the State invested €20.8 billion in AIB, including investments in EBS which AIB acquired. I believe that, over the course of time, the State will be able to recoup all of that investment through interest, dividends, fees and, ultimately, the sale of our shares.

As I have previously indicated, all capital returned from the State's investments in the Irish banks, will be used to reduce the national debt. This is the prudent course of action, it reduces our ongoing borrowing costs and ensures the future strength and stability of our economy. I have also indicated that while the Capital Reorganisation begins the process of the bank repaying the State aid it was granted, any decision to sell shares in the bank is a matter for the next Government. Officials in my Department will however continue to work with the bank in the coming months to ensure that the next Government has optionality in this regard.

On the second part of the Deputy's question, I would broadly agree with the views expressed by the outgoing Governor of the Central Bank regarding the lack of competition. The Irish banking and financial services sector would benefit from increased competition, though we have made some progress in this regard through initiatives such as the Strategic Banking Corporation of Ireland (SBCI), which facilitates competitive loans for Irish industry. I would anticipate competition in the sector will continue to improve, driven by domestic or international institutions as the economy recovers, the housing sector normalises and demand for new business investment expands.

While the dynamics of competition naturally affect the performance and profitability of AIB, this is true of any business. The competitive environment is only one of many factors that influence the value of AIB and it will be up the next Government to decide on the appropriate timing of any sale of shares in the bank.

Anthony Lawlor (Kildare North, Fine Gael)
Link to this: Individually | In context | Oireachtas source

17. To ask the Minister for Finance if the proceeds from the sale of shares in Allied Irish Banks can be better utilised for capital projects rather than to reduce the State's debt; and if he will make a statement on the matter. [40180/15]

Michael Noonan (Limerick City, Fine Gael)
Link to this: Individually | In context | Oireachtas source

As outlined in previous parliamentary questions regarding the sale of financial assets, these type of transactions do not result in a beneficial impact to the General Government Balance (GGB) under EUROSTAT rules. This is due to the fact that is classified as a 'financial transaction' whereby it is essentially the exchange of one form of asset (shares, equities, loans) for another kind (cash). Consequently, the sale of any shareholding in Allied Irish Bank (AIB) would not count as general government revenue but any additional spending would be supplementary to existing expenditure projections. Therefore, there will not be increased capacity to spend on capital projects as a result of the sale of shares in AIB without affecting the general government balance.

It should be noted that as part of Budget 2016 a capital plan for the period 2016-2021 was prepared by the Department of Public Expenditure and Reform and published by the Government. Compliance with the fiscal rules that apply to Ireland under the preventive arm of the Stability and Growth Pact was taken into account in the formulation of the capital plan.

However, while not improving the deficit cash proceeds arising from the sale of AIB shares would result in a reduced requirement for Exchequer borrowing which ultimately results in lower debt. A lower debt level is not only beneficial in terms of the fiscal sustainability of the State but would also lead to reduced interest payments in future years. The strategy of reducing the National debt is consistent with the Government policy of repaying the borrowing previously undertaken to finance the bailout of the banking sector during the financial crisis.

In summary, therefore, my strong view is that public indebtedness rose partly due to the recapitalisation of the Banks; the appropriate way of treating one-off revenue from divesting the State of its banking assets is to use these proceeds towards debt reduction.