I move: "That the Bill be now read a Second Time."
It falls to me to bring the final piece of legislation to this Dáil. The legislation is not very earth shattering, but this is a historic moment for me and for the Chair.
The ICC Bank was established 64 years ago with the specific purpose of financing the development of an industrial base in Ireland. The bank has expanded steadily over the years and has enjoyed consistent profitability since its incorporation. Other than the £11.9 million invested by the State as equity over the years, and the State guarantee in respect of some of its borrowings, the bank has received no other assistance from the State. The bank has grown through its own efforts to a stage where its balance sheet now amounts to more than £1,300 million. It has paid regular and increasing dividends to the Exchequer over the past two decades. In the past five years alone, dividend payments to the Exchequer amounted to almost £12 million while tax payments amounted to more than £14 million in the same period. In 1996, the bank made operating profits of £13 million. Of this, £2 million will be returned to the Exchequer in tax and £2.5 million in dividends.
The purpose of the Bill is to provide for the continued development of the ICC Bank. It is a simple technical Bill which has no implications for the future structure of the State banking sector. The Bill has just two main sections which are intended to raise both the existing borrowing limit and the limit on the bank's authorised share capital. This action is necessary to enable the ICC Bank to continue with its successful operations supporting Irish economic growth through loan and venture capital finance, targeted specifically at the SME sector which has contributed so significantly to employment and output growth over the past few years. The Bill is in no way related to any possible restructuring of the State banking sector. It is simply a straightforward technical Bill designed to remove obstacles to the bank's continued growth over the next few years.
The borrowings of the ICC Bank include loans and deposits from customers and other financial institutions. Such borrowings stand at £1,230 million. This is just £70 million short of the statutory limit which was last increased in 1992 from £1,000 million to £1,300 million. Based on current trends, the present limit is likely to be reached around the middle of this year. Given the bank's rate of growth in recent years, it is proposed to raise the borrowing limit by £1,000 million to £2,300 million, which should accommodate the bank's expansion for a number of years. Last year the House agreed to a similar increase in the borrowing limit of the ACC Bank.
Deputies will note it is not intended to increase the limit on the amount of ICC's borrowings which are guaranteed by the Minister for Finance. The policy of reducing the proportion of the bank's liabilities guaranteed by the Minister was first introduced in 1992, when the borrowing limit was increased to £1,300 million while the guarantee limit remained at £1,000 million. The bank's management agree with this approach and is committed over the next few years to significantly reducing the amount of borrowings guaranteed by the State in both nominal and percentage terms.
Shareholders' funds — mainly share capital and retained earnings — are the basis on which a bank's compliance with the capital adequacy requirements of the Central Bank is calculated. ICC Bank's authorised share capital of £12 million — a limit set down in legislation and last increased in 1971 — is fully subscribed and other shareholders' funds — principally retained earnings — are almost fully committed. As a result and because of the capital adequacy requirements of the Central Bank, the ICC Bank will soon be constrained in its efforts to increase its business. Thus, to ensure the continued expansion of the bank, it is proposed to raise the statutory limit on its authorised share capital to £40 million. This is simply an enabling provision. The increase in the limit does not commit the Minister to any specific injection of capital. It merely enables him to subscribe capital to the bank from time to time within the amount specified. It is quite normal, even for very small companies, to have a very large authorised share capital. Any decision to subscribe to further shares in the bank will be taken on the basis of an assessment of the bank's capital needs at the particular time and be subject to the State securing a satisfactory return on any such investment.
Before dealing with the detailed provisions of the Bill, I would like to give the House an indication of developments of the bank since 1992, when the last Bill to increase its borrowing limit was before it. The 1992 legislation enabled the bank to expand its traditional services and to engage in modern banking and financial services.
Since 1992 the bank has undertaken a number of significant initiatives in support of Irish industry and in response to developments and demands in the marketplace. In this regard, I draw particular attention to the bank's venture capital activities which have expanded significantly over the past few years to meet the increasing demand for this type of finance. The bank is now the leading venture capital institution in Ireland, with £14 million invested in 1996 alone. In 1994, the bank managed the first small business expansion loan scheme, handling the £100 million Government-supported fund. This scheme was highly influential in accelerating productive investment in the SME sector through the provision of long-term fixed rated funding at preferential rates. ICC Investment Bank, or ICCIB, ICC's specialist deposit-taking and investment subsidiary, has attracted a steadily rising level of funds since its establishment in 1993. These have been raised with a guarantee from ICC Bank rather than a State guarantee. ICC Investment Bank's funds now amount to nearly £370 million and account for about 30 per cent of the group's overall financing. The continuing future success of ICCIB in attracting unguaranteed funding will significantly reduce the bank's dependence on the State guarantee. ICC International Finance, the IFSC operation of the bank, is now providing full asset financing and treasury operations for corporate customers with overseas undertakings. The bank recently established its own consultancy unit, ICC Consulting, which will provide international financial, banking and industrial consulting and training services. ICC Bank is now a broadly-based financial institution providing an extensive range of financial services to the Irish business community.
As well as increasing its product range and facilities over the past five years, ICC Bank has also expanded its operations within and, for the first time, without the State with the opening of a branch in Belfast in 1996.
Last year, the bank put in place a voluntary early retirement and severance package with a view to improving its cost-income ratio. To this end and in order to finance internal restructuring and the development of new systems, the bank made an exceptional provision in the 1996 accounts of £3.95 million. The bank is currently undertaking an internal review and restructuring programme to identify new sources of income and ways of enhancing performance and profitability.
It is clear from the advances the bank made over the past few years and from the actions now being taken, that it is positioning itself well to enable it to continue to operate effectively in an increasingly competitive market.
I now turn to the main provisions of the Bill. Section 1 is the definitions section and is self explanatory.
Section 2 amends section 5 of the ICC Bank Act, 1992, by providing for an increase in the statutory limit on the bank's borrowings from the current level of £1,300 million to £2,300 million. The last increase was in 1992. The increase now proposed should provide for the projected growth in the bank's activities in the coming years.
Section 3 amends section 2 of the Industrial Credit (Amendment) Act, 1971, by providing for an increase in the limit on the authorised share capital from the current level of £12 million to £40 million. The last such increase was in 1971 when the limit was increased from £10 million. I should point out that the increase proposed relates only to the authorised share capital and in no way commits the Exchequer to any particular equity injection.
Section 4 is a standard provision with Bills of this kind. It requires that ICC Bank plc alter its memorandum and articles of association to make them consistent with the provisions of the Bill. There is a minor typographical error in the last line of this section where it reads "Acts, 1993 to 1997". This should read "Acts, 1933 to 1997", and I will be moving an amendment on Committee Stage to correct it.
Section 5 gives the short title, collective citation and construction. I commend the Bill to the House.
