I thank the Minister for facilitating this discussion on a key element of the NAMA project, which may help to get credit to flow to small businesses. Fine Gael has tabled amendments Nos. 29, 32 and 78. The Minister's amendment No. 127, which is very general in import, states:
(1) The Minister may issue guidelines—
(a) regarding lending practices and procedures to facilitate the availability of credit to classes of borrowers or potential borrowers including small and medium sized enterprises, and
(b) relating to the review of decisions of participating institutions to refuse credit facilities.
(2) A participating institution shall comply with any guidelines issued under subsection (1).
Fine Gael's three amendments, by contrast, more clearly prescribe what the banks should do. One of the weaknesses in the Mazars report was that it did not distinguish between new and existing businesses. Its headline figures suggested that €32 billion was extended to the small business sector at a particular time. A few months later, the same figure was increased. The report did not distinguish between new and existing facilities or take account of the withdrawal of overdraft facilities from existing customers. It did not consider factors like rolled-up interest and interest write-offs. It did not indicate the number of people who present themselves at the banks, as distinct from the number of applications that are processed. The banks normally use substantial screening processes so that by the time applications are registered, the people in question have already been more or less approved. We need the exact detail of what the banks will do.
Amendment No. 29, like the related amendment No. 32, states that the guidelines drawn up under section 13 should have regard to "credit for start-up enterprises". The small business sector has been badly served by the banking establishment. There are almost 250,000 small and medium-sized enterprises in Ireland. Some 800,000 people are employed in the SME sector. Many of them have come to our constituency clinics to tell us about the pressure they are under. I have spoken to people who may have an overdraft facility of €10,000. In some cases, the banks are reducing or withdrawing such overdrafts. As a result, many businesses are unable to continue to function. They are having to let staff go and are struggling to pay their creditors. It is a vicious circle. If a shopkeeper owes money, that can have a domino effect that puts a local garage out of business. We must ensure that credit is flowing. Bank credit is the lubricant of the economy in the sense that it can free up the credit bottlenecks that develop from time to time. If sufficient credit is available, business people will be able to pay each other. That is not happening at present because overdraft facilities have been restricted or removed.
We have made reference in amendment No. 29 to the "frequency of declined cases and the criteria that has been used to decline cases" because it is critical that the guidelines for any reporting structure that is imposed on the banks should deal with the issue of footfall. We need information on the number of people who come to the banks. It is acceptable for the banks to refuse credit to people for legitimate reasons, as no one wants imprudent lending. The Mazars report was economical in the sense that it did not give us any idea of the number of people who are presenting to the banks. It gave us details of applications that were approved, while mentioning a few nominal cases in which applications were not approved. I reiterate that proper reporting is critical.
It is extremely important that the guidelines should deal with "the renegotiation of existing credit lines and the terms that have been applied". Deputy Fahey has pointed out on a number of occasions that when businesses go to the banks to renegotiate their facilities, the banks often increase the punitive rates of interest they charge. If somebody with an overdraft facility of €10,000 or €15,000 also has a term loan facility, when the latter facility comes up for review the banks often change the conditions of the overdraft facility or the rate of interest. We need to get fair play from the banks when the cash injection of €51.3 billion tumbles in from NAMA. The banks cannot be allowed to cherry-pick premium clients. Everybody knows there is a level of risk in business — no business proposition is risk-free. The banks cannot be allowed to act in an absolutely risk-adverse manner. Given that the banks will be able to close the gates when the €51.3 billion injection has been handed over, the guidelines we are discussing will have to be approved in advance of the negotiations on the loans or the handing over of funds from NAMA to the banks.
I feel strongly that the guidelines should set "limitations on the use of the new liquidity for purposes other than extending credit", as proposed in amendment No. 29. The Minister will be aware that in EUROSTAT's communication to the banks on how they should deal with impaired assets, it suggested that the extension of funds to the banks through NAMA should be accompanied by behavioural constraints which would mean that the banks cannot use those funds in certain ways. I understand that the business plans being prepared by the banks have not yet gone to the European Commission for review. I do not doubt that restructuring will take place as part of those plans. Some €54 billion is to be given to the two main banks, which will be in a position to accept funds and lend them as credit. Anglo Irish Bank is a black hole, in effect, in terms of the approximately €20 billion that is being provided. The two main banks cannot be allowed to use those funds to buy other assets and thereby create more of a monopoly situation. They cannot be allowed to pay off their debts at much higher rates on the interbank markets. They cannot be allowed to use this money to play on the interbank markets overnight because that is where they will get the best rate of return. They cannot be allowed to pay off bond holders.
We must ensure the €51.3 billion is put to productive use in the economy. It affords the opportunity for a fiscal stimulus by the back door. I have no doubt that the European Commission had this in mind. I suspect it will not be happy if the banks hoard the money for their own devices. It is critical that they do not. Has the Minister received any communication from the Commission requiring the banks, as part of their business planning, to indicate to the Commission and the Government how exactly they propose to use the money?
There is a strong argument for putting protocols in place across various sectors. They should not be too prescriptive but should certainly apply to the areas of green energy and value-added products such that the money will be put to good use, particularly in the creation of jobs. Thus, a balance will be struck.
Subsection (4), as proposed in amendment No. 29, states: "Any guidelines made under this section shall be immediately laid before the Houses of the Oireachtas." This is critical. When does the Minister propose, on foot of amendment No. 127, to issue and obtain agreement on the guidelines? Will he be laying them before the Houses before any formal transfer of assets from the banks to NAMA? Once the assets are transferred and once the money has gone into the banks, the horse will have bolted. The Minister is in a strong negotiating position. He should not only accept his own amendment but our amendments also. Ours provide greater detail and clarify the Minister's, which is very general.
Amendment No. 29 deals with the guidelines and amendment No. 32 deals with directions and the types of conditions that would be laid down. Amendment No. 78 deals with the obligations of participating institutions. It seeks to insert:
(g) report of its success in meeting guidelines which shall be set from time to time by the Minister, in relation to making credit available [. . .],
(h) the guidelines referred to [. . .] shall include but are not limited to:
(i) credit for start-up enterprises,
(ii) the frequency of declined cases [. . .],
(iii) the renegotiation of existing credit lines [. . .], and
(iv) limitations on the use of the new liquidity for purposes other than extending credit,
The cut-off point will clearly be when the assets are transferred to NAMA. If the guidelines are not approved and laid before the House before that date, it will be too late.
We must also consider the reporting structures. We must not get back a report such as the Mazars report. I am not in any way judging Mazars. It had terms of reference determined by the type of information the banks provided to it and it effectively based its report on this information. I do not believe the banking system is unable to distinguish between new and existing loan facilities, as the banks told Mazars when it was completing its report.
It is critical that the Minister obtains details on all applications for loans and on all existing facilities that have been withdrawn. He should obtain details on all existing facilities where the rate of interest has been increased, how often the banks are carrying out reviews, the number of new cases to which credit has been extended and the types of credit facilities in these cases. Furthermore, he should compare the requests for credit facilities by businesspeople with the extent of the facilities afforded to them. The banks must not provide inadequate facilities such that businesses will not have sufficient working capital. NAMA is facilitating the banking system, giving it time to breathe and come back to life and removing from it its toxic debt. The banks should afford credit facilities to viable businesses.
Enterprises are going out of business at present not because they are not viable but because they are being starved of credit. This is a very real problem. The banks will say they are giving credit but they are not. They are giving credit to businesses that are effectively gold standard. I will not go so far as to refer to Government stock in this regard. Credit is only being given to businesses which in the current environment would be regarded as risk free.
If we are to emerge from recession, the banks must play their part and give loans where there is calculated risk. They must ensure funds flow. I commend our amendments to the House and hope the Minister will take them on board. They are very much consistent with amendment No. 127, which he had committed to tabling on Report Stage and on which I commend him. However, amendment No. 127 requires further clarification. We must not have woolly guidelines that will allow the banks to come back with woolly replies.