I move "That the Bill be now read a Second Time."
The purpose of the Bill is to make a number of amendments to the Agricultural Credit Act, 1978. That Act is the principal legislation governing the operations of the Agricultural Credit Corporation. It deals with the objects, constitution, functions and financing of the ACC and with the various charges which may be taken, not just by the ACC but by other banks, on land and other property as security for loans. Under the 1978 Act the ACC are limited to lending for the benefit of agriculture, horticulture or fisheries. Before discussing the Bill I would like to review in general terms the development of the ACC.
The corporation, one of Ireland's earliest State-sponsored bodies, were established in 1927 to provide a specialised credit service to agriculture. In particular it was intended that they should provide long-term credit to farmers and farm cooperatives, as this form of credit was not readily available from the commercial banks. For many years the volume of business transacted by the ACC remained small mainly because of the traditional reluctance of farmers to borrow, a reluctance which was partly due to the poor profits in agriculture.
By 1961, ACC's total assets were only £3.7 million while annual lendings were at the modest level of £0.8 million. However, there was a big change in agricultural investment in the mid-sixties, reflecting the improvement in the agricultural economy and the expectations generated by the prospect of entry into the European Economic Community. At this time, the ACC started to promote themselves as a lending agency and, as business increased, a network of district offices was established.
The growth in agricultural lending was given impetus by two pieces of legislation. The Agricultural Credit Act, 1961 increased the authorised share capital of the ACC, raised their borrowing limit, allowed them to engage in hire purchase lending and simplified the procedures for taking land as security for loans. The Agricultural Credit Act, 1965 enabled the ACC to take deposits from the public. ACC had up to then been funded by advances and equity from the Exchequer. This new source of funding enabled ACC to expand their lending without drawing on the Exchequer. As a result, annual lending grew to £4.9 million in 1965 and £17.5 million in 1972. Thereafter, with the impetus given to farming by EC membership, lending increased rapidly. New lending in the seventies peaked in 1978 at £132 million while by the end of the decade the ACC's total assets stood at £394 million.
The general economic problems of the eighties, high interest rates and an increasingly restrictive Common Agricultural Policy brought about a decline of both income and confidence within the agricultural sector. This decline has had its effect on the ACC. New lending business fell to a low of £85 million in 1983, although it has picked up since then, reaching £162 million in 1986. However, the increase in loan business in recent years has been accounted for by a substantial increase in business with the corporate food processing sector and is not due to any resurgence in loan demand by farmers. This increase in corporate lending business was one of the noteworthy responses of the corporation to diminishing profitability in their traditional area.
The factors which led to a decline in demand for credit by farmers also gave rise to difficulties with loan repayments and the consequent need for increased provisions against bad debts which, in turn, also adversely affected the corporation's profitability. The bad weather of 1985 and 1986 further exacerbated these difficulties. The need for increased profitability is the principal reason behind the Bill at present before the House.
There are three main provisions in the Bill. First, it is proposed that ACC should be empowered to lend to the non-agricultural area. Secondly, it is proposed to increase from £20 million to £35 million the statutory limit on ACC's share capital. Finally, it is proposed to increase from £10 million to £25 million the limit on the amount of loans in respect of which the Minister for Finance may guarantee the corporation against losses. I will deal with each of these provisions in turn.
Section 2 of the Bill is divided into two parts, the first of which sets out the banking activities in which the ACC may engage on a universal basis subject to such conditions as shall be determined by the Minister for Finance, after consultation with the Central Bank. This, therefore, is the provision which removes the restriction, contained in section 8 (1) (a) of the 1978 Act, of ACC's lending activities to the agricultural sector. The second part of section 2 limits the amount of non-agricultural lending which the ACC may do to 20 per cent of their business with the agricultural sector, or to such lesser amount as may be determined by the Minister for Finance.
There are a number of reasons for the proposal to permit ACC to engage in non-agricultural lending. New loan business will reduce the corporation's dependence on one particular sector — in this case a sector which is prone to cyclical peaks and troughs — and will improve profitability. The expansion of ACC's lending powers should also result in the corporation's becoming more attractive to the general public as a deposit-taking institution since, other things being equal, people tend to deposit money with institutions who can lend to them should the need arise. An increase in small deposits from the general public should both increase profitability and, in the long term, permit a reduction in lending rates.
ACC's move into non-agricultural lending would be in line with the general trend in other European countries. The French bank, Credit Agricole and the Dutch Rabobank provide two outstanding examples of agricultural banks which have diversified without any diminution of their service to agriculture.
I should say at this point that I am under no illusions about the immediate effect of this proposed new activity by the ACC, nor indeed are the ACC themselves. It will not transform the ACC's profitability overnight. I will be concerned to ensure that ACC should move cautiously until adequate experience has been gained in this new area and my Department will be monitoring the situation closely. I have already outlined the provisions in the Bill designed to ensure that non-agricultural lending by the corporation is strictly controlled. The fact that the Minister for Finance will have the power not only to control the amount of non-agricultural lending within the 20 per cent limit specified in this Bill but also to lay down such conditions as he considers appropriate will provide an adequate safeguard to ensure that ACC will always be in a position to meet the demand for agricultural credit.
I know that the concerns which I have expressed are shared by the ACC board and management and I, therefore, am confident that this venture will be successful. With the safeguards provided and with the long term potential for lower lending rates to farmers, I am also confident that the provisions of this Bill will be of benefit to ACC's core customers — the farmers of Ireland.
There is also another important dimension to this aspect of the legislation. The opportunity to develop a completely new business area will provide a significant morale boost for the management and staff of ACC who have in recent years been experiencing a decline in their core agricultural business which, in turn, has resulted in a large reduction in staff numbers. I have no doubt that the management and staff will welcome and rise to the challenge of developing profitable new business which this Bill provides.
I will now refer to the second amendment which is contained in section 4 of the Bill. The extension of ACC's lending powers was the original purpose behind this Bill but, because the limit on the corporation's share capital has been reached, I am taking the opportunity to ask the House to increase the limit from £20 million to £35 million.
Section 5 of the Bill provides for an increase from £10 million to £25 million in the amount of loans in respect of which the Minister for Finance may guarantee the corporation against losses; the existing limit has been reached in this case also as a result of guarantees of £4 million and £6 million given in respect of the 1984 and 1986 accounts respectively to supplement the corporation's bad debt provisions. To date no Exchequer money has had to be paid on foot of these guarantees given to the ACC.
I hope I have adequately explained the purposes of this Bill. If Deputies have any problems with the Bill I shall endeavour to deal with these in my reply to the debate.
I commend the Bill for the approval of the House.