Dáil Éireann debate -
Tuesday, 9 Mar 2010

Vol. 704 No. 3

Financial Institutions’ Credit Supply.

Deputy Michael McGrath

This matter will be of interest to many of the retailers in the country, some of whom are here tonight. At the outset, I thank the Office of the Ceann Comhairle for selecting this important matter for the Adjournment Debate.

When speaking on a Private Members' motion two weeks ago here in this House, I stated that job retention and job creation must be the first national priority for us as a country and for the Government. It is clear that the banks are not meeting the needs of the economy. Recently, ISME released a survey which confirmed that 55% of companies that applied for funding in the past three months were refused credit by their banks.

Like every Deputy in this House, I have a number of examples of constituents who are in business who have had loan applications refused and even in the case of those who currently have loan agreements, where such an agreement comes up for renewal the bank is taking the opportunity to significantly increase its margin on the loan. For example, in the case of a Cork business which has a loan of €430,000 with a bank, up until a recent loan agreement review the bank's margin was 1.5% and on review of the loan agreement the bank took the opportunity to increase that from 1.5% to 4%, an increase of 166% on the bank's margin. One can imagine the impact of that on any business.

It is disheartening to see viable businesses in the country collapsing because of the lack of cash. Even a highly profitable business can go under without an adequate supply of cash flow. The old adage that cash is king was never more true than it is at present.

We also must acknowledge that we are not trying to revert to the days that prevailed at the height of the Celtic tiger boom, where grossly excessive and recklessly irresponsible lending was at the heart of the banking crisis with which we now must deal. We need to find the correct balance whereby the banks move to a position where there is an appropriate sustainable level of lending to viable business.

It is clear that the banks in Ireland are rebuilding their balance sheets. They are competing vigorously for a deposit base but they are not competing anywhere near as vigorously for customers to whom to lend. They do not have an adequate supply of funding to lend and meet the needs of the economy.

It is true that NAMA will help the banks to rebuild their funding base by exchanging the illiquid property loans for the liquid NAMA bond asset, which they can encash at the ECB. NAMA will help, but will not, in itself, resolve the credit issue in the economy. The reality is that shortly, once the NAMA transfers begin to go through, the banks will have to be recapitalised. Hopefully, this will be from private funding sources but, where necessary, the Government has indicated that it is willing to provide additional capital.

In the event that the Government must provide additional capital, it is essential that the provisions enacted in this House under section 110 of the NAMA legislation — which empower the Minister to issue guidelines regarding lending practices and procedures to facilitate the availability of credit to classes of borrowers or potential borrowers, including small and medium-sized enterprises — are invoked and that clear and rigid guidelines are issued to the banks which must be complied with in terms of having an appropriate level of lending in the economy.

I welcome the fact that the credit review system will be established. It is a historic development that persons who have been refused credit by their banks will have recourse to an independent external review of decisions of credit refusal by NAMA participating banks.

Perhaps it is time that we look at the possibility of introducing a loan guarantee scheme for small and medium-sized enterprises — the Department of Enterprise, Trade and Employment has raised this issue. Many of our trading partners operate such schemes. In the UK, for example, up to 75% of the loan value can be guaranteed by the state. Such a scheme has been in place since 1981. There is a good Canadian study which compares the various small and medium enterprise, SME, loan guarantee schemes across Europe.

It is essential the issue is dealt with comprehensively to ensure the banks can meet the needs of the economy and extend the appropriate level of lending to SMEs so they can come through this difficult recession.

Minister of State at the Department of the Health and Children (Deputy Áine Brady)

I am taking this Adjournment matter on behalf of the Minister for Finance, Deputy Brian Lenihan.

The Government has taken several measures to deal with the issue of access to credit for SMEs since the advent of the banking crisis. As part of the recapitalisation package announced in February 2009, AIB and Bank of Ireland confirmed their commitment to increase lending capacity to SMEs by 10% and to provide an additional 30% capacity for lending to first-time buyers in 2009. If the mortgage lending was not taken up, then the extra capacity would be made available to SMEs.

AIB and Bank of Ireland have also committed to public campaigns to actively promote small business lending at competitive rates with increased transparency on the criteria to be met. Compliance with this commitment is being monitored by the Financial Regulator.

In addition, a code of conduct for business lending to SMEs, published by the Financial Regulator, took effect in March 2009. This code applies to all regulated banks and building societies and aims to facilitate access to credit, promote fairness and transparency and ensure banks assist borrowers in meeting their obligations, or otherwise deal with an arrears situation in an orderly and appropriate manner.

The business lending code includes a requirement for banks to offer their business customers annual review meetings, to inform customers of the basis for decisions made and to have written procedures for the proper handling of complaints.

Where a customer gets into difficulty, the banks will give the customer reasonable time and seek to agree an approach to resolve problems and to provide appropriate advice. This is a statutory code and banks are required to demonstrate compliance.

The Tánaiste and Minister for Enterprise, Trade and Employment set up a clearing group including representatives from the main banks, business interests and State agencies, which is chaired by her Department. The purpose of the group is to identify specific patterns of events or cases where the flow of credit to viable businesses appears to be blocked and to seek to identify credit supply solutions.

An independent review of credit availability was agreed in the context of the recapitalisation of AIB and Bank of Ireland. The purpose of the review, which was carried out by Mazars, was to ascertain the position on credit availability to SMEs in Ireland. The steering group for the review consisted of representatives of the Departments of Finance and Enterprise, Trade and Employment, Forfás, Enterprise Ireland, the Irish Banking Federation and the six main banks involved in lending to SMEs, business representatives from ISME, Chambers Ireland and the Small Firms Association.

The report made a series of recommendations including the further development of a framework for monitoring credit availability and measures to improve communications between the banks and SMEs. The report also suggested consideration of specific supports to ease the working capital requirements of SMEs, and measures to help investment levels in SMEs.

The second Mazars report on credit availability, published in December, confirmed that while some businesses are facing significant challenges accessing credit, and the SME sector in general is more conservative in its borrowing, others confirmed new lending is still taking place. However, the proportion of refused credit, especially in certain sectors, clearly remains a concern for the Government. Both reports are available on the Department of Finance website.

The Minister for Finance has said the banks should be in a better position to lend once the riskiest loans have been removed from their balance sheets and that viable businesses should expect a fair hearing when seeking funding. The banks' balance sheets will be stronger once NAMA has taken over these loans and replaced them with Government guaranteed bonds. This will give the banks greater access to liquidity and make long-term funding cheaper.

All Members will be familiar with the complaints of business people who cannot get credit but this does not mean that the banks are always wrong to refuse credit. The Mazars review in summer found refusals by the banks appeared reasonable in the sample it examined. The review showed an average of 24% of businesses reporting refusals, while the second review published in December showed a refusal rate of 28%. The banks claim lower figures but it is still clear that many people are being refused credit. The crux of the issue is the definition of "viable". No business seeks credit without thinking that it is viable but the banks do not always agree that the business is viable.

To help address this issue, under the NAMA legislation the Minister will shortly be issuing guidelines to ensure SMEs, sole traders and farm enterprises will have recourse to an independent, external review of decisions of credit refusal by the NAMA participating banks. It is hoped banks not participating in NAMA or covered by the Government guarantee will also decide to join the system. The aim is to have a simple, effective review process, run by people with experience and credibility. The banks must comply with the recommendations of the review process or explain why they will not do so.

In addition to dealing with individual cases, the credit review system will examine the credit policies and practices of the banks in respect of SMEs. This will help the Minister for Finance to decide what further action might be necessary to secure the flow of credit. The Minister intends to publish the analysis from the review process so that the performance of the banks participating in NAMA will be clear to all. Work has been ongoing since December on the logistical aspects of the review system and it is envisaged that reviews will commence presently.

Care of the Elderly.

Deputy Frank Feighan

I call on the Minister for Health and Children to reverse the cruel decision to cancel day-care services at Plunkett Home, Boyle, County Roscommon, which affects 50 people whose only outlet from isolation has been hit by this action. This service has been taken away by an uncaring Government which protects bankers. Some years ago it was said health cuts hurt the old, the sick and the handicapped. Unfortunately, the Government is doing this again.

The elderly people who used Plunkett Home paid €4 for the service costs. It transformed their lives, allowing them to meet friends, have a dinner, play bingo, get their hair done and have physiotherapy while it gave their families some respite. The service has been suspended for three months but as every Member knows it may never be restored again. There is a moratorium on replacing health staff who are sick. In the real world, there must be some flexibility in allowing staff replacement. We aim to keep elderly people out of acute hospital services. What better way to do so than by providing a day-care service for the elderly?

The elderly built up the country and sacrificed everything for our future. Once again the boot of bureaucracy has been put into those who deserve comfort, respect and care in their twilight years. One gentleman, who uses the Plunkett Home service, returned from living in the UK for 53 years to Roscommon recently. Last night on local radio he admitted because of the way he has been treated he is thinking of returning to the UK.

Is this the way to deal with Irish diaspora, the people who never forgot us in our time of want? On St. Patrick's Day, when the Taoiseach will give the US President, Mr. Obama, a bowl of shamrock will he tell him the way we treat our elderly people and how these services have been pulled, a denial of people's rights?

We often talk about offering our young people a future and hope. Yet, when we neglect our elderly people like this, is it any wonder young people emigrate to Australia and elsewhere? The only way to get out of a recession is by protecting existing jobs and creating more. This service in Boyle could provide employment to several people, yet the Government cannot lift the moratorium on recruitment to the public sector. It is a shame on the Government and all politicians not to accede to the wishes of the people in question. The Minister of State is a reasonable person and this should not happen. On this occasion, the moratorium must be lifted and these jobs must be replaced. We must ensure these 50 elderly people receive compassion from the Government. If the Minister of State does so, I will say well done. This is not about politics, it is about the elderly people in our community who need some compassion and care.

We need to do the right thing by our elderly people. I ask the Minister of State to ensure this disgraceful decision is reversed. If so, I will be the first to thank and praise him and the Government. This is a cowardly decision and reversing it could provide help and a secure future for our elderly people.

Deputy Áine Brady

I thank Deputy Frank Feighan for raising this issue as it provides me with an opportunity to update the House on this matter. This Government is committed to supporting people to live in dignity and independence in their homes and communities for as long as possible. Where this is not feasible, the health service supports access to quality long-term residential care where appropriate. We continue to develop and improve health services in all regions of the country and to ensure quality and patient safety.

The HSE has operational responsibility for the delivery of health and social services, including those at facilities such as Plunkett Home, Boyle. All developments must be addressed in the light of the current economic and budgetary pressures. The HSE has been asked to make a rigorous examination of how existing funding might be re-configured or re-allocated to ensure maximum service provision is achieved.

The integrated services directorate is the HSE directorate responsible for the delivery of health care services. In line with what is happening around the country, the HSE in Roscommon is currently reviewing its use of resources and facilities for all care in the county. The latest information available from the HSE indicates that it was to temporarily close the day care service at the Plunkett community nursing unit in Boyle from Monday, 8 March. The HSE currently has a number of vacancies in the service and due to the moratorium it is unable to recruit replacement staff. It appreciates that this is an inconvenience for clients of this service but the HSE must have appropriate staffing levels to run any service safely. The service is suspended for a period of three months and the HSE will make every effort to restore it as quickly as possible. In view of the current industrial action, this is the most current information available to me.