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Seanad Éireann debate -
Thursday, 9 Apr 1992

Vol. 132 No. 5

ACC Bank Bill, 1992: Second Stage.

Question proposed: "That the Bill be now read a Second Time."

The purpose of this Bill is essentially to assist in the further growth and development of the corporation and their activities, to facilitate the Agricultural Credit Corporation's development as a bank by bringing them within the normal banking supervision of the Central Bank, and to ensure that the corporation will be in a position to meet EC regulatory requirements in the banking area.

The various provisions and amendments contained in the Bill are summarised in the explanatory memorandum which has been circulated with the Bill. Before moving on to discuss the contents of the Bill in some detail, I should like to say a few words by way of background about ACC.

As you are aware, the ACC were established to cater for the special needs of agriculture in this country, in particular by way of the provision of long term credit which was not easily available from other sources. The process of growth of the ACC was a slow one, however, and it was not until the sixties that the corporation began to establish themselves as a major lending agency, assisted by legislation which increased their borrowing powers and enabled them to accept deposits from the public. In this period and in the following decade, growth in agriculture was generally strong, boosted by Ireland's entry into the European Community. The subsequent economic difficulties of the early 1980s impacted adversely on the agricultural sector however and, as a consequence, on the performance of ACC. Defaults on loans outstanding and increases in arrears seriously affected the profitability of the corporation, culminating in heavy losses in 1987. The Agricultural Credit Act, 1988, sought to help address the problems of the ACC, in particular through the granting of powers to the corporation to lend to non-agricultural sectors amounts up to 25 per cent of loans outstanding in the agricultural area.

Since 1988, the ACC have turned the corner in relation to their financial position and have now secured, as the report and accounts published this week shows, a fourth successive year of increasing profitability. The application of strict lending criteria to new loans, the vigorous pursuit of arrears of payments and the contribution from new areas of lending to the income of the corporation have helped make this new, healthier position possible. It is not now considered good banking practice to confine oneself to sectoral banking or, indeed, to over expose a loan book to a single sector and the Bill is intended to ensure that the improvement in the corporation's situation continues by making provisions to assist in the further development of the ACC, in particular through diversification. In line with Government policy on the sale of State assets, the disposal of the State's interest in the corporation will fall to be considered in due course when the time is considered appropriate.

I now turn to the provisions of the Bill itself. Sections 1 and 3 of the Bill are, of course, standard provisions relating to necessary definitions to be included in the legisation.

Section 2 provides for a change of name of the ACC. The new name will be ACC Bank. Although there is no change in substance involved in this new name, it does signal a change in the direction the corporation are taking. As part of their development and diversification plans, the ACC are seeking to attract new customers from the non-farm community. In particular, the major urban centres of population present a potential new market for the corporation's products — such as competitive home loans, cheque book and cheque card accounts, credit cards and personal loans — which they have introduced in the recent past. However, market research has indicated that many urban dwellers have little or no awareness of ACC and their activities; in so far as knowledge of the corporation or their role is concerned, it is perceived that they are an organisation which relates to farming only and is not of relevance to the majority of people.

The change of name, accompanied by appropriate marketing efforts, is intended to help change this rural only image of the Agricultural Credit Corporation. The word "Bank" in the new title will put across the message to people that ACC can offer a full range of banking services that are relevant both to farming and agri-business on the one hand, and personal and business customers, on the other.

Section 4 provides for the application of certain supervisory provisions contained in Central Bank legislation to the corporation at a date, or dates, to be determined by ministerial order and after consultation with the Central Bank. These provisions will, of course, be administered by the Central Bank itself in respect of the corporation while I, as Minister for Finance, will continue to exercise my existing functions with regard to ACC. The proposed Central Bank supervision is in line with Government policy in this area, namely, that given the small scale of resources available for financial supervision of deposit-taking institutions in Ireland and given EC requirements for the regulation of financial markets, it is appropriate that a body such as the ACC should come within the appropriate prudential supervision of the Central Bank. This has already occurred in the case of the Trustee Savings Banks and building societies, and is part of the consolidation process that is required by the imminent completion of the Internal Market in financial markets with its attendant increase in competition. The Board of ACC are fully supportive of this new relationship with the Central Bank and see it as an essential step on the way to becoming a competitive banking institution subject to the same rules and regulations as the other credit institutions supervised by the Central Bank. Indeed, the corporation have for some time now been submitting financial reports to the Central Bank on a voluntary basis and similar to those which the bank require of other credit institutions.

Section 5 is concerned with making explicit the powers of the corporation to engage in normal, modern banking and financial transactions and to provide associated service of this nature, subject to conditions which may be imposed by the authorities. To this end, section 8 (1) of the Agricultural Credit Act, 1978, is being amended and a related provision, namely, section 2 of the Agricultural Credit Act, 1988, is being repealed by Section 13 (b) of this Bill. Apart from some few changes in the description of the activities which may be engaged in, the activities of the corporation covered by section 5 are the same as those enumerated in the 1978 and 1988 legislation referred to. There are two additional amendments however to section 8 (1) of the 1978 Act. First, section 5 now provides for consultation with the Central Bank in respect of any conditions which the Minister for Finance may impose in relation to the lending, activities of the corporation. This consultative process will, however, be reversed when the Ministerial orders to be made under section 4 of this Bill come into effect: that is, when the Central Bank takes prudential supervisory control of the ACC as provided for by section 4, the Central Bank will then assume the power to impose conditions on the corporation's activities, after consultation with the Minister for Finnace, and this is provided for in section 5 of this Bill.

The second main difference between this section and the corresponding provisions of the Agricultural Credit Acts, 1978 and 1988, is that the existing formal restriction on lending outside the agriculture sector is removed. The 1978 legislation prohibited any such lending while the 1988 Act limited such lending to 25 per cent of the corporation's lending to the agriculture sector. The Agricultural Credit Act, 1988 — section 2 — prescribed that the corporation could lend up to 25 per cent of their agricultural loan book to the non-agricultural sectors, that is, for every £4 lent to agriculture, £1 could be lent elsewhere. The ACC have now reached this ratio of lending and are therefore prevented from further lending to the non-agricultural sector — unless they were to artificially increase their agricultural lending so as to be able to lend 25 per cent of that increase to non-agricultural business. It is this limit therefore, the 25 per cent limit, which has been reached and which therefore demands urgent action by way of legislative amendment. This is provided for, inter alia, by section 5 of the Bill.

Without the removal of the existing restrictions on non-agricultural lending, ACC will remain at a standstill in their effort to develop and diversify. It is effectively blocked from taking up good lending opportunities even now. The option of artifically boosting agricultural lending so as to thereby increase non-agricultural lending that I have already referred to is not a serious one. Hence the need for urgent legislative action in order to allow ACC to continue their diversified lending programme without a serious loss in momentum.

This removal of the restriction on lending outside agriculture is in any event a logical one in the development of ACC. The corporation's share of the farm lending sector has been on a downward trend in the last ten years but overall they remain a single-sector bank with far greater exposure to this one area than their competitors. As the corporation are set to come under the supervision of the Central Bank in the near future — under section 4 of this Bill — it is necessary that the ACC should be in a position to move towards the standards which the Central Bank will wish to lay down in relation to their exposure to risk. These bank standards, for example, limit the amount which credit institutions may lend to any one borrower or associated group of borrowers or to any particular sector. However, I want to emphasise that the removal of the existing limit on non-agricultural lending by ACC will not precipitate an untoward rush into diversified lending outside agriculture. I intend, and the Central Bank is of like mind, that the development of ACC's lending in other directions will be a controlled one which is why section 5 of this Bill includes the provision I have already mentioned that the lending activities of the Corporation may be made subject to conditions imposed by the Minister for Finance, after consultation with the Central Bank and vice versa, when regulations under section 4 of the Bill are made.

There are other reasons, of course, why the removal of the present lending strictures on ACC are necessary apart from the prudential one already mentioned. The ability of ACC to provide credit for the agricultural sector is not enhanced by limiting their opportunities to lend and gain profit in other sectors. ACC's competitors, who have by far the lion's share of the farm loan market, have no similar restrictions on their lending outside agriculture. ACC's return to profit since 1988 has been aided by their, albeit limited, powers to lend to the non-agricultural sectors and it is envisaged that extension of their ability to lend in these areas will contribute increasingly to their profitability in the future.

From the point of view also of disposal of the State's interest in the corporation in the future, if this course of action becomes appropriate, it would be foolish not to recognise that an organisation which continued to be hamstrung by restrictive lending conditions would be less likely to realise their full potential and thereby maximise the return to the State in terms of the price to be obtained for it.

However, the further diversification of ACC's lending should not be seen as a diminution of the corporation's commitment to the agriculture sector. The farming and agribusiness sector is recognised as one which will continue to be the single most important strand of the corporation's activities for some considerable time.

Section 6 provides for an increase in the maximum number of directors of the corporation from seven to nine. This will allow additional expertise to be brought onto the board at a time when the ACC are at a critical stage of their development and diversification and, incidentally, will bring the corporation into line with the other State bank, ICC, who have nine board members.

Section 7 provides for an increase in the authorised share capital of the company from £35 million to £50 million. This is an enabling provision only as it relates to authorised rather than actual share capital. The total share capital subscribed for to date is £25.4 million.

Section 8 provides for an increase in the existing limit on borrowings by the corporation — from £800 million to £1,000 million. It also provides that the Minister for Finance may attach conditions or limitations to such borrowings, after consultation with the Central Bank. Again, this is an enabling provision only as borrowings by the corporation, at around £628 million at present, are comfortably below the existing limit of £800 million.

Section 9 requires that the ACC alter their memorandum and articles of association in accordance with the provisions of the Bill. This is a standard provision.

Sections 10 and 11 are of a technical nature. They extend the scope of the Banker's Books Evidence Act, 1879, as amended, and section 2 of the Bills of Exchange Act, 1882, as amended, to the corporation. These Acts already apply to banks and building societies.

Section 12 provides explicit powers for the ACC to engage in guarantee-type business by the amendment of section 27 of the Insurance Act, 1989, so as to include the corporation among the institutions that are named in that section as being empowered to carry on guarantee business.

Section 13 (a) recognises that as the ACC are now engaging in the provision of mortgages in competition with other financial institutions, exemption from payment of Land Registry and Registry of Deeds fees is no longer justified. The reason for the exemption in the first place had been recognition of the restricted nature of the activities that ACC could engage in — that is, restricted to the agricultural sector.

Section 13 (b) provides for repeal of section 2 of the Agricultural Credit Act, 1988, and I have already dealt with this when talking about section 5.

The final section, section 14 is a standard one.

I hope that I have explained clearly the provisions of this Bill but, of course, I shall be happy to elaborate on them if required by any Senator.

I should like to compliment the board, management and staff of the ACC for their work in turning the corporation around in terms of their financial performance. I am confident that this new Bill will enable the corporation to make further strong advances towards becoming the sort of modern, diversified credit institution which is capable of serving all sectors of the community equally well while retaining their long-established, important relationship with the agricultural sector.

I thank you, a Leas-Chathaoirligh, and the Seanad for facilitating the taking of this Bill prior to the recess.

While acknowledging the urgency to pass this Bill which will raise the lending ceiling to the non-agricultural sector by the ACC, we should not let the Bill go through in its entirety without acknowledging that it also contains some fundamental changes and a recognition of the changed nature of the ACC. While there is an immediate reason for this Bill to come before the House — and that is understandable — it contains clauses and changes of substance which are to an extent being slipped through under the guise of immediate urgency. I regret that it went through the Dáil with so little scrutiny and, therefore, I hope we can do it justice in the limited time available.

There may be a misconception when Bills such as this are introduced in the House — especially in the financial services sector — that the financial services sector is an unlimited expanding industry and that to launch the ACC almost fully fledged into that sector is almost necessarily giving them a ticket to a successful commercial future. That is no longer the case. There is a myth among many who are not in the financial services sector that it is still an expanding industry, which it no longer is. One has only to look at the turnover figures on the world stock exchanges to realise that it is a very finite industry, and, indeed, it may well have seen its best days. That is a caveat which we should certainly be aware of when allowing the two State banks, the ICC and the ACC to expand. It is not necessarily going to be a successful venture for them in the long run because they are competing with a very experienced private sector in what has been in recent years a contracting industry. Nevertheless, the ACC has acquitted themselves reasonably well in recent years and while this measure is an acknowledgment of the contracting role of agriculture in our economy, it also acknowledges that the ACC have adapted well in difficult circumstances.

I would like to refer to one or two points in the Minister's speech. First, he skilfully managed to avoid the most pertinent question, and that was not unexpected or surprising. Why is the Minister making such dramatic changes in what the ACC can do at this time? One can only conclude that he is preparing the ACC for privatisation. That is a laudible and sensible aim, and perhaps the Minister could throw a little light on this. He said that in line with Government policy on the sale of State assets, the disposal of the State's interests in the corporation will fall to be considered in due course when it is considered appropriate. That is one of the best ways of saying nothing I have come across for a very long time. The Minister may be unable to enlighten us further, but it would be helpful if he set out a timetable for privatisation of the ACC and the ICC.

It would be more helpful if he told us why these two banks, whose services are duplicated in many areas, cannot be merged and if he has any plans to launch them on the stock market together. When the Minister provided in his budget for the sale of State assets it was anticipated by some commentators that their sale would, in fact, be a flotation of the ICC and the ACC. However, shares in Irish Life were sold. This was a wise decision and it was not necessary to sell other State assets. It might be helpful to the financial community and others who complained at that time, wrongly in my view, if the Minister gave an indication of the plans he and the Government have for future privatisations. In that way we would be aware of what is taking place when a Bill such as this is introduced.

There is a major problem in this Bill, and in the financial services sector in Ireland generally. The supervisory body, otherwise known as the prudential supervisor of the corporation, almost inevitably turns out to be the Central Bank. There appears to be a presumption in the financial services sector in Europe and in the Government that if there is doubt about a supervisory body it should be left to the Central Bank to do the job. It is anticipated that when the EC regulations as regards the Stock Exchange are fully implemented the Central Bank will be the supervisory authority. In the past, the Central Bank policed exchange control and was the supervisory body; it is also the supervisory body of the building societies also and the banks in general and now apparently — if it is not questioned — in consultation with the Minister, it will be the supervisory body of the ACC. That presumption is questionable for many reasons. The Central Bank enjoyed a privileged and monopolistic position in Ireland for many years and I do not believe that has been to the benefit of either the financial community or the consumers.

The gilt market which has been controlled by the Central Bank — the financial supervisory and regulatory body here has been regulated in an unsatisfactory manner for many years. The market in Government stocks has a characteristic which would not be tolerated in many other European countries in that for a very long time it was impossible for any small investors to buy Government stocks in certain areas. It was possible for an investor to sell Government stocks at a price determined by the Government broker — in fact, the price was determined by the Central Bank — but on many occasions it was impossible for him to purchase Government stocks. The Central Bank may be blamed for this. As the Minister is aware, there was a two-tier market; there was a secondary market where broker dealt with broker and, in effect, institution dealt with institution but in the primary market, which dealt with the small investor and the largest number in aggregate, it was impossible for many of them to purchase Government stocks in the areas in which they were interested. As a result of that they were frequently advised by stockbrokers to buy similar stocks in the UK gilt market rather than buy them here. That was when exchange control was lifted. But there was a situation where many small investors were locked out of the gilt market because of the way the gilt market was operated. That was unsatisfactory and unfair and it is not the way a gilt market should be operated. For that we have to blame the Department of Finance, but basically the Central Bank which was the regulatory body and the body that issued the stock. That is unfortunate.

The Central Bank was the regulatory body, the supervisory body in charge of exchange control. Exchange control was particularly rigid from 1979 to 1989 and it is difficult to know whether the Central Bank did its job properly in that period. What we do know is that there was not a single prosecution by the Central Bank for breach of exchange control in that ten to 11 year period. That is a phenomenal achievement on the part of the Irish people: that either there was not a single breach of exchange control, which I find a little difficult to believe, or the exchange control regulations simply were not being policed properly, which I find easier to believe. I would take it, not that there was any negligence on the part of the Central Bank nor any wilful need or desire or pressure not to police those particular exchange controls, which were on paper rigid but in essence ineffective, but presumably the Central Bank was not properly staffed to do this particular job. If it was not staffed to patrol the exchange control regulations, if it did not have the imagination to create and operate a proper gilt market, and if it is now to be landed with being the national regulatory body for the Stock Exchange as well, I am very doubtful about its capacity to take another bank on board.

The Central Bank, over the years, has not covered itself in glory in its policing of the banks. I mention only the sudden collapse of the Insurance Corporation of Ireland and the appalling possibilities that that offered to the banking system here, and also the collapse of the Gallagher Bank. I am at a loss to know why there was not an adequate early warning system where the Central Bank would have been able to prevent these things happening. Basically what I am saying is that the Central Bank has too much to do already; that it is getting landed with every dirty job in the financial services sector. It has not got a particularly effective track record in that area and there is no reason for believing that it will do a particularly good job in taking over these regulatory powers from the Minister with ACC. I suppose it is inevitable for the Minister to say, "Give it to the Central Bank". This would be an opportunity for the Minister to question the role of the Central Bank and to say, "Well, maybe some other body should look at this". The fact is, of course, that there is no other body. If we are to ask the Central Bank to take over these powers we should acknowledge that it has failed in meeting its obligations in the past and that at the very least it needs far more staff and facilities if it is to effectively police an increasingly complicated financial services sector. As the Minister will know, the financial services sector is a particularly difficult area to police. The Central Bank, I suggest, is not equipped to do it at this stage.

It seems appropriate that we are considering this Bill one day after the AGM, which was held yesterday. The figures, as issued in the reports and the accounts yesterday, are certainly the sort of figures you would expect from a company which was coming to the market shortly. While I think the ACC Bank's performance has been good, I would be slightly sceptical about the figures which we had yesterday and I certainly would be sceptical about the press reports we got about ACC yesterday. The sort of laudatory reports we got from some of the newspapers remind me of journalists who simply read press releases and just put them straight down in the newspaper. Indeed, I congratulate the board of ACC on a very good public relations job and I especially, point out The Irish Press, which says “ACC Bank diversifies its profits, leap 25 per cent” and then, without any hint of prejudice whatsoever, underneath it says “Profits slump 20 per cent” in the Independent. You do not often get that sort of nice, cosy contrast in the newspapers, and I suppose they do not often get such an opportunity themselves. However, I think they were a little less critical in their greeting of the profits of the ACC bank than they were the profits, I think £8 million, the Independent last year, which is not an inconsiderable amount of money, but I suppose it is in the nature of things for one newspaper to have that sort of a go at another.

I do not believe that the ACC's figures are quite as good as they make them out to be. What they do is that they take profits before tax, which show a 25 per cent leap; but, in that very well-worn path which banks can take in coming to their profit figures, they adjust their provision for bad debts. The provision for bad debts in the ACC accounts as issued yesterday was £3.26 million as opposed to £4.711 million for the previous year. It is not explained at any stage how they come to this figure for bad debts. Banks rarely explain that, because it is a useful piece of discretionary accounting which enables them to reach a profit figure which suits them. What it indicates to me is that they have come up with a figure which is bang in line with target — not totally coincidentally — that they have reduced their provision for bad debts from the year before. They explained this informally by saying that the previous year's figures were over-provided, which of course means that the profit figure the previous year was a little lower than we might normally expect, which in turn means that the profit figure this year will be a little higher and we will have a nice little graph showing steady growth in ACC. That is exactly what we have.

Of course, we must congratulate ACC as well on that extremely good publicity move of paying a dividend of £382,000 out of profits of £6.5 million. It is not a big dividend, but in terms of coming to the market it is a very good start and it is a good way of persuading prospective investors that you are a healthy company behaving in a commercial manner. The reality is that earnings per share were only up from 17.5p to 18.1p and if you take profits after tax they are only up from £4.5 million to £4.6 million. That should not take away from the fact that ACC have over the last ten years moved from a very poor situation to a very good one.

I do not know whether it is in order to ask the Minister any detailed questions about the accounts, but I am puzzled by one thing, and that is the reason it is necessary to increase the board of ACC from seven to nine. Section 6 says that this will bring ACC into line with the other State bank, ICC, who have a board of nine. What is the reason for bringing the ACC into line with ICC? It is a complete non sequiter to me that the two banks should have the same number of people on the board unless there are some particular people in mind or unless there is some reason which I have not thought of. It seems crazy that the two State boards should be the same size. Presumably the Minister has great confidence in the board at the moment and sees no need to bring them up suddenly to the same size as the ICC. Maybe they want it up to the same size as other similar companies but that would seem to be a slightly odd reason.

The other items in this Bill which puzzle me are what are called rather glibly, in the Minister's speech and in the explanatory memorandum, "enabling provisions". There is an enabling provision to increase the authorised share capital from £35 million to £50 million. That is a rather vague enabling provision. It is an increase of about 40 per cent, and we do not have any reason for it. We should be told why this is being done.

There is also a question I would like to ask about the directors. I am sure they are very able and, like in all State companies, they are not very well rewarded. We have an item here for administrative expenses, which is item 2 on a note to the accounts, which have increased in the balance sheet by £2.5 million this year. When you come to look at the note to the accounts, which is meant to explain the increase in administrative expenses, it does not give any reason for that. It says "Included in administrative expenses for the year are the following" and then it gives a few items which increase or decrease by very small amounts; but it does not give any explanation as to why administrative expenses were increased by £2.5 million, which is a significant amount in terms of the profit and loss of the company.

Acting Chairman (Mr. Farrell)

The Senator is quoting from the ACC accounts, which are not applicable to the Bill.

With respect, I will tell you why they are increased. It is applicable to see where the administractive expenses of the ACC go. We are being asked to vote increase powers to the ACC and we are entitled to know where the money is going and where it is coming from.

The other item which is very important under that heading is this: the directors get a paltry £4,000 a year between them, but then there is a very strange item called "other emoluments"— a long word which means quite a lot. This item shows an increase from £93,000 to £107,000 as between 1990 and 1991. While the directors are only getting £4,000 per annum, they are apparently coming out with £107,000 for somewhere else which is totally unexplained. As taxpayers and under the Title of this Bill, we are entitled to know what these other emoluments are and what sort of rewards the directors of ACC are getting.

I do not have any intention of opposing this Bill, but we are entitled to answers to one or two questions about the way ACC are run. We should not pass the Bill without asking certain questions and we should not yield to the temptation of saying that this company, as a result of this Bill, are destined for a wonderful unimpeded future in commercial terms, because we are launching them and giving them the right to participate in a financial world which is going to be extremely difficult. Simply giving the company powers to lend and borrow more money is not going to mean straightforward ticket to huge profits for the ACC or the Government.

First, in what is significant is that this institution is known as the Agricultural Credit Corporation, that 15 per cent of their lending is to the farming sector and that the rest of the farm sector lending is from the Associated Banks. One would therefore, be inclined, to think that the title of the bank is a misnomer. The 25 per cent ceiling that exists for external borrowing was an encumbrance to development of the Agricultural Credit Corporation. We had the executives of the bank indicating how anxious they were to raise the ceiling because they knew well that, while performing well, the bank could only remain at a standstill unless that restriction was removed.

I would like to refer to one point made by Senator Ross, that is, that due credit should be given to Dan McGing and his staff for the performance of the bank. For the first time since 1974 a dividend has been paid by ACC this year.

The Sugar Company did this previously.

It is important that we would acknowledge when a good job is done and in this instance we can be happy that the days of the eighties are behind us and that with good management this bank is performing very well, given the constraints that are on it.

The Minister is quite clearly stating that there will be more competition. He is now setting in place a bank — and, I suppose, given the "O'Keeffe Initiative" I should be the first to welcome the fact that there is an opportunity for further competition in the financial sector. For that reason I welcome the Bill. The punter in the street will be glad to have another bank that will facilitate him by way of deposits and loans, and hopefully these loans will be made available at more competitive rates. I am talking here in terms of charges. That, too, is to be welcomed.

It is also important to state that the Minister is not abandoning the agricultural sector and to emphasise that the specification involved here still means that the Minister is spreading the risk to ensure continued increase in profitability. It would be daft to put all our eggs in the one basket. Why would we lose an opportunity to ensure that a State owned company would be developed into a full banking institution with all the mechanisms that are now common to commercial banks? Why would we not try to ensure that this bank can hold its own position in the market place and in doing so increase the profitability to the State and ensure that if the Minister decides to privatise he can do so in the knowledge that there is a far more valuable asset being sold off by this State than would be the case at present. Can you imainge trying to sell off a privatised Agricultural Credit Corporation at the present time, selling off a farmer's bank as it were? Senator Ross questioned why the Minister was making such major provisions at the present time. Of course, what he failed to do was to acknowledge that this is a Minister with foresight. This man is thinking ahead.

I acknowledge that — nothing personal.

I will copperfasten that acknowledgement because it is important, too. Executives of ACC see this as a prudent move. It is important also that they have been supported in this by the Central Bank, who say that it is vital at this stage that the role of ACC would be enhanced as a commercial bank.

We should also take note of the role of the Minister for Finance, that his role will not be affected by the move and that the existing powers and functions which the Minister has at present will remain, that all the share capital will be held by him and he will continue to monitor the operations of the bank. It would appear the Minister has quite clearly indicated that increasing the role of this bank will leave him with all the options open. I am glad that in the other House the Minister was quite emphatic that he was not likely to sell this off for the quick buck, and he has indicated he is in for the long haul; in other words, increase the provision for the bank and ensure that if the Government at the end of the day decide to sell it off they will sell if off at a much increased value to the State.

Introducing ACC as a bank gives major options down the road to the Government. There is the possibility, for instance, of amalgamation with the Trustee Savings Bank. There is also the other option — and one I would ask the Minister to consider seriously — and that is to have a look at ICC. Would it not make good sense also to extend the role of ICC as a State asset and ensure that the capital base which could accrue to the State would be far better? Perhaps, having done that, we could have a look at ACC and ICC and amalgamate both of those, so that at the end of the day we will get a far better return to the State from the privatisation of both of these assets. I must say that I personally am not opposed to privatisation; I welcome it. I think it is a major step forward in thinking within this Government and something for which they are to be lauded.

It is quite right that the Opposition would have a look at rationalisation. We must ask ourselves what the word "rationalisation" has meant in the past. I would be the first to admit that rationalisation smacks of job losses and I am very conscious that if we were to amalgamate, sell off or privatise the Minister would keep this in mind. It is important also to understand the precedent set by this Minister when he was in the Department of Labour. I point, for instance, to the situation that obtained in regard to the Great Southern Hotels. There were various options open to the Minister at that time. He could have sold them off to private enterprise, but he did not; he sold them off to a semi-State company. In doing that he made sure that the effects on rationalisation, job losses, were curtailed. In fact, I understand that this company is now profitably operating and indeed that there has been an increase in the overall number of staff taken on. That precedent is there and we must give due credit to the Minister for ensuring that was done. That gives us every confidence in any future decisions this Minister and the Government will take involving ACC or indeed ICC.

It is also important to note that in dealing with ACC we should look back and see what happened in the 1980s. We find they had difficult times. There was a situation where we had defaulters and increases in arrears. In 1988 provisions were introduced which brought them out of that situation and now they are trading profitably.

It is also important to state when dealing with this Bill that sectoral banking is not a good idea because you have overexposure to a particular section. What happens, for instance, if you do not increase the provisions to ensure that the bank operates as a commercial entity in the modern financial world? There are two things, in my view. Because of the 25 per cent restriction ACC will either have to comply with the restriction or will have to find a mechanism around it. I do not think a Minister or a Government would like to see any State company becoming involved in that. What is even more significant still is that because of the restriction ACC might be lulled into a situation where they would be inclined to take on risks that are not warranted and that we could see ourselves going back to the difficulties that obtained pre-1988. I think that is going to be a very important aspect to the farming sector and is a facet of the operations of this bank that should be emphasised.

The word "Agriculture" will, I hope, ensure that with proper marketing the bank will target that sector and that ACC will become a far more meaningful bank to the people concerned than it has ever previously been, because there is no doubt that there is a percentage share of the market still out there in the farming sector that the bank can look to and compete for with the others. If you look at the urban dweller there is one thing certain — there is an acute lack of awareness of the existence of ACC. They perceive it as being a farmer's bank. Surely again the Minister is quite right in making this move now, because why should that be so? Why would we not extend the focus, the range and the activities of this bank to bring it to the urban dweller and to make sure it is seen as a competitive bank in the marketplace. Will this bank, as a result of this Bill, be able to compete for a proper market share? Up to now it has been reporting to the Central Bank on a voluntary basis. There will be no major changes in this method under the provision of the Bill, so there will be no great changes there.

There are a number of points on which I wished to respond to Senator Ross. As always, he made a very fine speech and I congratulate him on that before I start putting in the knife. I cannot understand how Senator Ross would question the laudatory report in the newspapers. If you think back to pre-1988, those same newspapers were condemning the same ACC. Now, with audited accounts, we have Senator Ross saying outrageous things in this House about his colleagues and there is also the matter of the biased nature of some of the material that is going into homes in Dublin from a wouldbe candidate for Fine Gael in the next general election. The Senator is hardly questioning the audited accounts that were presented yesterday.

I hope I have said enough to recommend this Bill to the House and I am glad to be in a position to support it.

I find the presentation of this Bill to the House a rather sad occasion because to me it marks a very significant change in traditional Government policy towards the financing of agriculture. This was one of the very earliest State institutions to be established in this fledgling State with the mandate and the direction to assist the development of all facets of Irish agriculture. Indeed, over the years, practically every manager in the ACC had an agricultural science qualification and was very heavily biased in favour of the agricultural industry but the ACC did not act any more sympathetically to farmers in financial difficulties. They were not more sympathetic than the ordinary commercial banks. That is borne out by the very small percentage of agricultural business the ACC, this agricultural specialist bank, has been able to command. If one looks at the profits recorded in recent reports, my bet is that the greater proportion of them are represented by the hauling in of the bad debts that were previously written off. Indeed, three or four years ago when that very sharp crunch was on the agricultural industry as a whole, the ACC were as difficult, if not more difficult, to deal with than the ordinary commercial banks.

The shift in Government policy is regrettable. I would have preferred a different approach at a time when agriculture is going through a period of reform. It is a very difficult financial phase. It is regrettable that Government policy is going in the wrong direction. Return on capital invested in agriculture in the good days was never more than 2 per cent.

If we are to compete in agriculture and to have any hope of maintaining the jobs in that sector, there will have to be a special effort to try to finance the young farmers who are entering the industry. There is no room for expansion in agriculture. Margins are restricted. It is not possible to expand even on crops. There are contracts and quotas in all agricultural husbandries that one could possibly go into, with exception of non-food crops and other areas that Government Ministers do not seem to have any great interest in.

I would like to ask the Minister to commission a review of the report on agricultural credit and finance which a Professor Gilmore produced and published about 1957 or 1958. He assessed the worth of agriculture here. That figure is of particular importance. We are getting away from a specialist service to an industry, whether we like it or not. It accounts for a very significant percentage of the economic activity of this country. I regret that the ACC are getting away from their base direction, but nevertheless I wish them well.

I do not think we desperately need another commercial bank here. In any provincial town there is a preponderence of finance houses, whether they are the ordinary commercial banks or others. There are many lending agencies. They seem to be in every second house on the main streets of our towns. We are fast becoming a sort of money lending or money changing economy. That is, in the main, non-productive. At the same time we have to compete with people who have access to finance at several percentage points less than that charged by the institutions here.

I regret it is considered necessary to make this change to prepare the Agricultural Credit Corporation for privatisation. I am not impressed that they produced a healthier balance sheet for the past year or so, because the Sugar Company who were recording huge losses for years, in the lead up to their privatisation were able to turn the figures around very neatly when it suited them. Privatisation has meant less job opportunities and employment here. The only change that is taking place is that more people are going on the dole. We would be better off to stop the clock now. Semi-State organisations surely have an obligation to contribute to our economy and make some contribution to providing job opportunities and give families an opportunity to live here. If the 111 or 112 semi-State organisations are to go into reverse and prepare themselves for privatisation, and if the only way they can reduce their overheads is to shed staff, then we will not be reporting 300,000 people unemployed here, but almost double that figure.

Previous Governments set up many semi-State companies to give State aid to different sectors of the economy. By and large they made their contribution. We have heard for years of Irish solutions to Irish problems. Some of those solutions worked very well and are providing employment. If they are able to compete well they should be left alone. We are looking at the ACC from an economic point of view and forgetting that from here on Irish agriculture will need special facilities, special consideration and special lending rates which should be less than the commercial rates if it is to have a hope of surviving and competing.

If the Government accept the policy that agriculture will go to the wall, then we must be prepared to provide for payment to double the number dependent on social welfare in the next few years. That is a horrific prospect to countenance in the years ahead.

I do not wish to say anything against the ACC. After all, I am a customer. They have always treated me very well — I think I owe them £400, so I am lucky enough. I know many of the people working in the ACC bank very well. I wish them well and I have every confidence in them. I would have preferred if they had been given a new mandate so that they could directly assist the agricultural industry. Having regard to the preponderance of agricultural experts in the ACC, they surely understand the problems and the shortcomings in agriculture. They are better equipped to put that input into agriculture and to be able to assess, in a very specialist way, the needs and the viability of proposals. From that point of view the only reservation I have is that we are not bringing in new sections in a Bill to enable this organisation, which is a specialist one, to give preferential treatment to the development of the agricultural industry over the next few years.

On behalf of the Minister for Finance, I would like to thank those Senators who have contributed to this debate on the ACC Bank Bill, 1992.

This is a seminal Bill in certain respects for the corporation and they are taking on a new name as part of their development drive to extend their appeal to a wider spectrum of customers and at the same time existing restrictions on lending to those customers are being removed, restrictions which are at present preventing ACC from seizing good lending opportunities available to them. Additionally, as part of their move into a more competitive banking environment and in order that they will be in a position to better comply with EC banking regulations, the corporation will be supervised in the area of banking activities by the Central Bank. Their board is being increased in size to enable the corporation to enlist additional directors with expertise relevant to their activities. The limit on borrowings by the corporation, and their authorised share capital, are being increased also to cater for changes that may occur in the future. The range of the corporation's activities are being made more explicit. For these reasons it is an important though nevertheless a non-controversial Bill, in our view.

I should like to make it clear to the House, by way of reassurance, that the Bill will not result in an abandonment of the agricultural sector. What is involved is an inevitable and necessary process of diversification and spreading of risks by the ACC in order to ensure continuing and increasing profitability and financial stability. This is the route that the European agricultural banks have taken. In the modern financial world, single-sector banking, or putting all one's eggs in the same basket, is an activity fraught with danger and high risk. In fact, it may jeopardise the very sector that one is trying to cosset if it results in lost opportunities to improve financial performance by lending to other sectors of the economy. The role of the ACC in the agriculture sector must also be put in perspective. It is not the only bank in the country which lends to agriculture — it has only some 15 per cent of the agricultural credit market. The banks which do the bulk of such agricultural lending have, nevertheless, no restrictions imposed on their lending to other sectors besides agriculture — so why should ACC continue to be so restricted? The experiences of the corporation in the eighties which culminated in losses of nearly £15 million in 1987 need to be taken account of. It is simply a matter of common sense to hedge one's bets, in this case to hedge against falls in the farming sector by doing business in other sectors of the economy.

There is a more fundamental reason also as to why removal of the existing restriction on lending by the ACC outside agriculture is required. The Central Bank has indicated that a move in this direction is necessary if the ACC is to be in a position to comply with the normal standards of financial prudence that the Central Bank lays down in respect of banks generally. In the context of the bank assuming a prudential supervisory role in respect of the ACC under section 4 of the Bill, therefore, it is necessary to provide that the Corporation will be in a position, at some point in the future, to comply with bank criteria as regards sectoral lending. The removal of the restriction on lending by ACC will allow this to happen.

As regards the issue of the State's interest in ACC and its possible sale in the future, it is not a matter of feeding the turkey for the Christmas feast. I should point out to those who argue that this Bill is simply a prelude to sale that the 1978 ACC legislation permits the Minister for Finance to sell shares in ACC and that the present legislation gives him no extra powers in this respect. Regardless of whether the State intended to dispose of its interest in ACC, it would still be necessary to have legislation, such as this Bill before us, enacted in order to allow the ACC to develop profitability in its own right. All of the provisions of the Bill can stand alone in their own right; there is no necessary connection with any decision in the future regarding disposal of the State's interest in the Corporation. If and when however a proposal or proposals in relation to this matter of sale of ACC come up for consideration, all the options open to the State will be examined. There is no question of selling off the family silver at a cut-price simply to generate any old level of income for the Exchequer. The course chosen, in the event of private sector involvement in ACC, will be the one which will optimise the benefit to the State.

The development of ACC along the route envisaged in the Bill has not been decided upon without thought to alternative strategies. The question of merger between ACC and ICC, the two State banks, has been mooted on several occasions in the recent past but examination of the matter has highlighted the difficulties and drawbacks of such a proposal. I would simply repeat that we will examine all of the options open to us in this regard.

It is normal practice when a Bill such as the present one is going through the House to take the opportunity to review existing standard provisions in the legislation — for example, those which contain references to amounts or limits — and make changes if considered appropriate to do so. In this instance, in the case of the proposed increase in authorised share capital, a review of the existing £35 million limit suggested that it might be prudent to avail of the enactment of new ACC legislation to increase the limit to £50 million. Due allowance has to be made for possible future growth by ACC and, consequently, that it is adequately capitalised on an ongoing basis and is in a position to comply with Central Bank and EC requirements in this regard. Provision of a higher limit on authorised share capital would permit of this.

This however, is an enabling provision only and the Minister wishes to assure the House that it is being included in the Bill without any existing intention on his part as Minister for Finance to avail of the provision to subscribe for share capital in the corporation. Indeed, as matters stand, Exchequer investment in ACC, at £25.4 million is comfortably below the existing authorised share capital limit of £35 million. As Senators are probably aware, section 11 of the Agricultural Credit Act, 1978, allows the Minister for Finance to issue and sell shares in the corporation to other persons and although he has no plans or proposals to do so, it is possible that such a route could be investigated in the event of a decision to sell some or all of the State's interest in the corporation in the future. In such an event, the new, higher, authorised share capital limit might prove useful. The Minister wishes to emphasise, however, that there are no proposals at present for take-up of share capital in ACC by him or anyone else. I should also like to point out that the ACC's share of agribusiness is 15 per cent, compared to that of the associated and other banks, which is 85 per cent.

I understand that Senator Ross used the opportunity of this debate to indulge in a certain amount of Central Bank bashing which we believe is totally unjustified. As regards the relevant role of the bank in relation to this Bill, that is acting as prudential supervisors of ACC, it seems perfectly logical that this should be the case. After all, the Central Bank already has a well tried and tested system in operation for supervising the banks in general. ACC can be readily accommodated within this system without any undue strain on the Central Bank.

With regard to increases in the number of directors, it is specifically stated that the reason for the increase in the number of directors was to bring additional expertise to the board. In so far as the increase in administration expenses is concerned, there will be an increase in staff of 4 per cent and an increase in marketing of the ACC bank. Also, there will be a requirement for a new computer system. The emoluments relate to a bonus system for the staff and has totally to do with directors as well. It is logical also to have a single regulatory authority for all financial institutions. Contributors will know that the playing pitch is even and that they will be treated equally.

ACC accounts are accurate and full, and the fall in bad debts relates to a more stringent credit assessment and hence the need for such high provisions. The Minister would like to point out that the provisions for the first time is in line with an institution of this size.

In conclusion, a Chathaoirligh, I want, on behalf of the Minister for Finance, to thank all those who contributed to what I think was an excellent debate.

Question put and agreed to.
Agreed to take remaining Stages today.
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