Is section 1 agreed?
Industrial Credit (Amendment) Bill, 1990: Committee and Final Stages.
Question proposed: "That section 1 stand part of the Bill."
Wait now, it might not be if we go too quickly.
Acting Chairman
If the Senator has her copy of the Bill in front of her, as I have mine, I will go through the sections. Is section 2 agreed?
Section 1 is not agreed. I have got a copy of the Bill in front of me.
The essence of the Bill, as the Minister said, is a bit of housekeeping to raise the borrowing limits as required by the ICC. I would like to thank the Minister for answering most of the points I raised on Second Stage in his concluding remarks. There are some aspects that are still far from clear and they pertain to section 1 and, to some extent, section 2.
I would like to ask the Minister if he will tell this House a little more about what he has in mind about reorganising of ICC which, reading between the lines and from what has not been said, is apparently upon us. It is a shame that when this legislation is before us we cannot have a broader debate on the future role of the ICC, particularly in a barrier-free Europe from 1 January 1993 and, given that the ICC was established in the mid-thirties, in a very protectionist environment. The environment we are in could not be more different to the trading environment or the industrial environment that existed when the ICC was established, and justifiably so. It has been a successful body over the years but we are in a totally different climate now. May I ask the Minister to be more generous with his thoughts in terms of what he is looking for from his financial advisers? He stated that there would be little alternative but to raise the shareholders' funds in ICC. We all feel there are new fields ahead and fairly major policy decisions about to be taken.
On section 1 which effectively asks the ICC to continue as heretofore, albeit with the raised borrowing limit, will the Minister develop the views of the Government and their aspirations on this? In both Houses this has been the main area of concern of many of the Members who have addressed this. What is the future of a Government-run bank as we approach the barrier-free Europe and the Internal Market? Is there a need for it at all? That is a major policy decision. When one grants to the board of ICC what they request in terms of proper investment to allow them to trade successfully in a very competitive financial environment one has to consider what the new EC directives will bring upon us. Will the Minister develop his thoughts on this which encompasses all of what we have said in different ways?
There is no doubt that in this House and in the other House good contributions were made by all sides. Clearly, Members wanted to elicit information as to what the picture will be for the ICC in future years. I do not wish to be less than gracious to Senator Doyle but there is clearly no way we can discuss these matters as comprehensively as we would want to because the Minister for Finance has invited in consultants. He has clearly indicated on a number of occasions that he has an open mind on this. Looking on one side of the coin, there are huge competitive forces for the available resources of the State and there is an onus on the Government to ensure that taxpayers' interests are looked after to the maximum extent possible. The scope for continued State investment of the order of what has been the practice in the past, without being specific to this company, is no longer possible.
It would be unwise, while awaiting the consultants' report and all of the deliberations that will take place in consultation with the management of ICC, to discuss at this stage how the company will end up. The question clearly is premature. I take the point that Senators are concerned about this aspect and it is something we will be returning to in the course of the next couple of years.
I thank the Minister. I appreciate that, regardless of what he knows or does not know, he is not in a position to prematurely announce to this House what the thoughts of the Government may be in as much as he may know them on this issue. It is important that we firmly mark down the fact that this is a point of major concern. While we could have limited our contributions on these two sections, and indeed on Second Stage, merely to the advisability or otherwise of raising the borrowing limits — and there is not much of a debate on that specific point given the state we are at at the moment — the overriding policy discussions which are foremost in all our minds needed teasing out here.
The Minister responded to questions I had asked on Second Stage in relation to Fóir Teoranta being embraced by ICC in future. Could he specify exactly what the corporate relationship of Fóir Teoranta would be once within the embrace of ICC? Will it be subsidiary? Fóir Teoranta had many risk investments, by the very nature of being a rescue agency it had some marginal investments on hand and where the balance of advantage lay in investing in the companies, it did not do so because that is what we all wanted Fóir Teoranta to do. It still carries some very risky investments and ventures while it is now being transferred to ICC. How could these high risk companies that still owe Fóir Teoranta — and in the future ICC-repayments not put ICC at risk from possible defaulting? In other words, looking at the corporate structure at the moment and the commercial success the ICC has been, the ICC has been told by the Government to take on high risk portfolios from Fóir Teoranta; notwithstanding what the Minister has just said about the relationship, I cannot understand — in the absence of an explanation from the Minister of what the actual relationship between the two bodies will be in the future — how these high risk portfolios could not attract some defaulters and thereby affect the profitability and commerciality of the ICC. Perhaps that could be explained. It is important in the context of future development. In other words, if one were to raise the shareholders' funds in ICC either through floating part of it and allowing private investment or by other means you affect the profitability and the value of the shares if you foist on ICC risk portfolios which obviously some in Fóir Teoranta must be.
It seems to make no difference how I approach this question from the point of view of helping Senator Doyle. I have to stay in her black books as far as this question is concerned. She asked about the future relationship between Fóir Teoranta and ICC. Fóir Teoranta is going to be dissolved. It will not longer exist. It will have no relationship with anybody. It will be gone forever. As regards the question of dealing with the risk capital, or companies which could be regarded to be of high risk, we have been at pains to say at all times that ICC will not continue the functions of Fóir Teoranta in relation to these cases. There can be no public understanding that we are continuing functions which hitherto resided with Fóir Teoranta in relation to rescue operations. We do not want to signal to anybody, anywhere, that these resources are going to be available in the future.
Will repayments not have to continue to be made?
Of course they will.
And if they default?
I do not think we should try to anticipate difficulties of that kind which could have the effect, in a debate like this of transmitting a notion which I certainly would not like to transmit.
With respect, does the Minister not think he is being a little disingenuous? I do not want to cause any difficulties in terms of profitability to the ICC, even though I have a feeling that our meagre contribution in this House will not affect too many, but I cannot understand how the ICC's commercial viability will not be affected negatively to some extent by having to take on more risky portfolios — obviously these are companies it did not choose to invest in previously because Fóir Teoranta the rescue agency, had to manage them. Now they are going into ICC there is a higher risk of default from those portfolios than from the ICC's own portfolios it hand picked over the years. If there is a default to a lesser or greater extent, will that not affect the profitability of ICC and thereby affect the value of the shareholding?
I take Senator Doyle's point. There are two or three points. One is obviously the proportionate quantum of these risks in relation to ICC's overall size, which is very substantial. In any commercial transaction between a bank or other financing institution and a venture company there is always a degree of profit, a degree of risk which relates very often to securities demanded or the rate of interest demanded. I would suggest that perhaps far greater risks are encountered by the banks in matters which do not relate so much to these relatively small risk ventures. In some ways I cannot help thinking that we should encourage our financial institutions to give more support to Irish venture capital situations. This has been one of the weaknesses of our financial services market. Very often the financial institutions throughout the world have suffered far more from lending on a basis which, at the time, may have appeared very reasonable to other countries which had perhaps at one time very large oil revenues, and then finding they are left with debts which they cannot pay and having to write off extraordinarily large sums or, alternatively, investing in something which happens to be very popular at a given time, such as the American institutions which invested in property which now appears to have been grossly exaggerated, and now the institutions, even the most conservative institutions are suffering. Senator Doyle has a point but I would suggest that the relative quantum is relatively small in the circumstances.
Question put and agreed to.
SECTION 2.
Question proposed: "That section 2 stand part of the Bill."
May I ask one more question in relation to section 2 and the same question could be asked of section 1? The Minister responded to a point I made on Second Stage about the change in the operations over the years of the ICC in terms of the balance of what was lent in equity investment versus loan finance and he diplomatically said we got it wrong. He put it a bit nicer than that, but that is what he meant — that there was no such change.
I did not use words like that.
No, he did not, but I am paraphrasing rather bluntly the message he was giving. It is interesting to note that the objectives of the 1933 Act are defined as acquisition, underwriting, holding and selling of shares, that is the £10 million equivalent of what the ICC is at today. The objectives go on to state: "They shall also include the lending of money". That is not the primary objective; but it started off as the primary objective. Equity investment has become the secondary role. It may not be the secondary objective but it is certainly the secondary role — around £10 million is the figure that is out on equity investment at the moment. In terms of loan finance — and I am speaking from memory — it is £608 million or £610 million, or somewhere in that ballpark.
The point I have been making — and I suspect other Senators made on Second Stage — was that there appeared to have been a reversal of the role of the ICC given, quite understandably, the huge change in the industrial climate and the environment in which they were working from the protectionist environment of the thirties to the open trading environment that we find ourselves in, and hopefully that will even improve. That was the point we were making and we would like comment from the Minister on that. What appeared to be the primary objective has now become a secondary role, and what appeared to be a secondary objective has now become the primary role; perhaps it adds strength to the case that the Government should not be in the business of owning banks at all now given the climate we are in and where we are heading.
I was almost tempted, in the sort of good humoured approach that very often operates on this side of the House on debates, to say that some 50 years after an Act is passed, could Senator Doyle not give credit to individuals whose perception about change could not have embraced what we have since experienced, or had written into the Act anywhere something that would cover all of the developments. I say that rather jocosely because there is a much more easy, fundamental, straightforward, logical answer, and that is, the Industrial Credit Act, 1933, is:
An Act to make provisions for the formation and registration of a company having for its principal object the providing of industrial credit, and for the acquisition by the Minister for Finance of share capital of such company, and for other purposes connected with the matters aforesaid.
What I said earlier was no departure from the fundamental purpose of the founding legislation.
I accept that.
Question put and agreed to.
SECTION 3.
Question proposed: "That section 3 stand part of the Bill."
What does section 3 do?
It is a routine provision specifying that the company should take steps to alter its memorandum and articles of association to bring them into line with the provisions of the Bill. It is normal provision for all such cases, enabling in other words.
It also involves the alteration of the State guarantee to the higher limits.
To accommodate that.
To accommodate the increased borrowing. I noted what the Minister said in his response on Second Stage in relation to misgivings I and I think Senator Ross had about the continuing State guarantee. He made the fair point that future investors should not be discriminated against compared with the treatment given to past investors. That point has to be accepted of course but what we were trying to find out and were not very articulate in the message we were giving, was the role of the State guarantee in the future in terms of what is essentially a commercial bank now, like any other bank and if there are differences perhaps it is time they were ironed out. How the transition period could do that, or whether it could do that, I am not sufficiently experienced in this area to comment. However, there is a feeling that the need to continue with any State owned bank in the climate in which we now find ourselves is no longer there. The same remarks would apply to the Agricultural Credit Corporation. I think I referred to the Agricultural Credit Corporation in my Second Stage contribution. I would like to know if the Minister believes there is a role in the future for a State owned bank giving State guarantees, given the industrial and commercial climate in which we now operate and given the 1 January 1993 advent of the Internal Market.
This takes us back to the road we were on a quarter of an hour ago when I said I could not really discuss these matters because far from being inarticulate, an effort was being made to extract what may be in the Government's mind in relation to the overall position. I give the Senator due credit for her ability to do that but I reserve my right to withhold that information until such time as it is appropriate to deal with it in the House.
Enough said. We will see the Minister back here in a few months time and we will rerun the debate but with a few more satisfactory answers that may be more relevant at the time.
Question put and agreed to.
Section 4 agreed to.
Title agreed to.
Bill reported without amendment.
Agreed to take remaining Stages today.
Bill received for final consideration.
Question proposed: "That the Bill do now pass."
There are interesting times ahead for Irish banking and the Irish financial sector, and I hope exciting times all over. We are looking at EC directives. We have had the relaxing of exchange controls and it follows automatically that financial controls of one kind or another will relax as well. Regrettably because of the restricted nature of the Bill before us as the Minister has pointed out, we could not really get the answers to the bigger questions that are exercising all our minds at the moment. The ICC being one of two State owned banks should be afforded the increase in borrowing limits that this enabling legislation is to provide, and thereby will have our support for what this Bill tries to do, which is very limited.
May I again thank the House for the speedy passage of this legislation. A number of points were made which could not really be dealt with in the context of the very precise nature of this legislation but we look forward to a future opportunity in the area of industrial policy that we referred to and, in the wider questions of what will arise following the consultants report, debating these matters further in the House. I thank everybody for their contributions.
Question put and agreed to.