The main purpose of this Bill is to allow banks licensed under the Central Bank Act, 1971, to engage in certain types of bonding and guarantee business so as to facilitate the needs of the Irish construction industry. Over a considerable period the construction industry has made representations about difficulties being experienced by it in having its bonding requirements met by the insurance market in respect of contracts arising abroad. This situation has seriously affected the ability of our construction firms to compete in foreign markets and the problem is being accentuated by the tendency of many foreign clients to require that bonds be issued by banks rather than by insurers. In the course of considering this problem and in the light of further representations from the construction industry it emerged that difficulties are also being experienced by construction firms seeking bonding arrangements to cover contracts at home. I propose under this Bill to allow the licensed banks to engage in this business in future, both home and abroad, and to do what are commonly described as development bonds also.
I am advised that certain export industries would also be helped if banks as well as insurers were enabled to meet their bonding requirements and the Bill proposes to allow the licensed banks to engage in bonding and guarantee business required by such enterprises in relation to their exports or the provision of services outside the State. Provision is also made in the Bill—in clause (C) of subsection (1) (a) (ii) of section 2—to ensure that Irish banks will not face legal obstacles in guaranteeing loans to customers wishing to borrow for projects in Ireland from international financial institutions or from EEC sources such as the European Investment Bank. These bodies represent an important source of capital for industry or major projects. The law as it stands was regarded by the banks as not making clear their power to give guarantees of the kind referred to and the provision now proposed is intended to put beyond doubt the power of the banks to give such guarantees.
As a result of representations made by the banks following publication of this Bill I have agreed, in order to reflect what is normal banking practice, to legislate for the licensed banks to issue all forms of pure financial guarantee regardless of where the needs for such arise. In doing this the need to refer to specific financial institutions as was the case under section 2 (2) is not now necessary. I propose to introduce an amendment to the Bill to remove the statement at section 2 (1) (a) (ii) (C) which reads "being a contract to which a body to which this clause applies is a party," and to delete section 2 (2) accordingly.
Another important area dealt with in the Bill relates to the issue by foreign banks of bonds or guarantees in respect of the construction, manufacture or production in the State of any thing. This provision at subsection (2) (1) (b) is seen as of assistance to the need of the operations in Ireland of foreign companies. Such Irish operations often depend on the guaranteed backing of their parent companies' banks when the Irish based enterprise is getting finance from the Irish banks. In the Bill, the ability at law of such foreign banks to engage in guarantee business is limited to cases where bonds or guarantees are required by the licensed banks as a condition of granting financial facilities, and the provision is no wider than this.
Here again the banks, following publication of the Bill, urged on me and I have accepted that this provision also should be extended to allow foreign banks to engage in the business of pure financial guarantee where this is required by and given to the licensed banks, and I will propose an amendment to that effect at the appropriate stage.
The Bill will also allow the licensed banks to engage in bonding and guarantee business in some further areas closely related to banking business such as in relation to lost bank notes, missing documents, bills of lading etc.
The matters to which I have referred have up to now been governed by the provisions of the Insurance Act, 1936, which confined guarantee and suretyship business to licensed insurance companies only. By providing for the availability from the banks, in defined areas, of the services covered by this Bill, I consider that I am meeting a clearly established need. Moreover in giving to banks the powers proposed under the Bill I am enabling them to do what is already the widespread practice of banks in other countries. My proposals in this area have been the subject of discussions with the insurers, the banks and the construction industry, and I think can be said to enjoy broad consensus.
None of the provisions of the Bill will affect the ability of insurers to continue to engage in the business of giving bonds. As a technical operation it will also be necessary by Statutory Instrument to amend the European Communities (Non-Life Insurance) Regulations, 1976, to take account of the Bill's provisions and to free the banks from the requirements of those regulations in so far as they engaged in the type of business provided for by the Bill.
I have taken the opportunity of this Bill to increase the export credit scheme cover. The Minister for Industry, Commerce and Energy has powers under the Insurance Acts 1953, 1969 and 1971 to give guarantees with respect to the insurance of risks in connection with the export of goods and in relation to the rendering of design and planning services, the work on which is carried out in Ireland in connection with engineering and constructional works executed abroad.
Export credit insurance enables exporters to insure against loss the risks entailed in selling goods abroad on credit terms. These risks fall into two main classes: commercial risks arising from default or insolvency of the buyer, and political risks, arising from the outbreak of war or revolution in the buyer's country or from Government action in the buyer's country which would prevent the goods being delivered or paid for. Examples of such action would be the introduction of new import controls or restrictions on payment transfers.
The purpose of section 3 of this Bill is to provide for an increase in the aggregate amount of the liability which may be assured by me under the Insurance Acts, 1953, 1969 and 1971 for export guarantees covering the insurance of risks in connection with the external trade. This increase from the existing limit of £30 million to £100 million is made necessary by the growth in the value and volume of exports being insured under the present export credit insurance scheme. It is envisaged that the proposed limit of £100 million should be sufficient to cater for the growth in demand for export credit insurance over the next three to four years.
It will be appreciated that the aggregate potential liability could only fall to be met if the multiplicity of risks covered by all the insurance policies issued should materialise. Such a possibility is extremely remote, indeed. For the information of Deputies the present export credit Insurance Scheme is operated in such a manner that taking one year with another there is no net loss to State funds.
The enactment of these provisions will, I feel sure, be greeted with satisfaction by the construction industry, manufacturers and exporters and indeed all of us who are aware of the importance of these industries to the nation's overall wellbeing and have no hesitation in commending this Bill to the Dáil.