This measure is intended, broadly speaking, to facilitate our export business both in goods and services, to facilitate borrowing from external institutions for major industrial and other projects, and to make legal provision for a number of matters arising in the course of banking business.
To achieve these objectives the Bill proposes first, to allow banks licensed under the Central Bank Act, 1971 to engage in bonding and guarantee business required by Irish enterprises in relation to their exports or the provision of services outside the State. Secondly, to allow the licensed banks to engage in certain types of bonding and guarantee business, in order to facilitate the needs of the construction industry both home and export. Thirdly, to enable the licensed banks to guarantee loans for customers wishing to borrow for projects in Ireland from international financial institutions and to issue all forms of pure financial guarantee wherever the need for such guarantees arise. Fourthly, to enable foreign, non-licensed, banks to issue bonds or guarantees where such bonds or guarantees are required by licensed banks to enable them to make financial facilities available to clients in Ireland. Fifthly, to permit the licensed banks to engage in bonding and guarantee business in respect of a number of other matters related or incidental to banking business such as loss of bank notes, documents, bills of lading, and so on. Sixthly, to provide for an increase in the aggregate amount of the Minister's liability under the export credit scheme from £30 million to £100 million to enable the Minister to meet the growing demand for service under this scheme arising from the increase in the volume and value of exports.
For some years now Irish exporting industries, both goods and services, have been hampered by the fact that some importers abroad, particularly Middle Eastern countries, insisted, for their own good reasons, that bonds whether pure financial or guarantee bonds would only be accepted when issued by a licensed bank. Existing insurance law precluded this and it was not part of bonding business in which the Irish insurance industry had any real interest. The wider availability of bonds for exports will no doubt make it easier for Irish products and services to compete on foreign markets and this legislation is the answer to one very real difficulty being experienced by those engaged in the very important work of export promotion.
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 empower 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.
On Committee Stage in the Dáil I accepted an amendment from the Opposition which would extend the definition of the construction contract to include the development of land for agricultural, mining or quarrying purposes or the exploration or exploitation of the seabed. These are areas closely related to construction work and which it is felt should have full availability of pure financial and performance bonds.
Provision was 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.
Following publication of the Bill the licensed banks made representations that provision should be made to enable them to issue all forms of pure guarantee regardless of where the need for such arise. The Bill now before this House incorporates this amendment.
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, and so on.
Another important area dealt with in the Bill relates to the issue by foreign banks of bonds or guarantees securing financial facilities made available by a licensed bank. The 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.
None of the provisions of the Bill will affect the ability of insurers to continue to engage in the business of giving bonds—by enabling the banks to issue the bonds specified in the Bill I am reflecting what is widespread practice in other countries. 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 engage in the type of business provided for by the Bill.
The purpose of section 3 is to provide for an increase in the aggregate amount of the liability which may be assured by the Minister 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.
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. It will be appreciated that the aggregate potential liability of the Minister under this scheme could only fall to be met if the multiplicity of risks covered by all policies issued should materialise. The possibility of this happening is extremely remote indeed.
The enactment of this Bill will, I feel sure, be warmly welcomed 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 well being.
