The main purpose of this Bill is to provide for the continued development of the Industrial Credit Corporation plc. It allows for an increase in the amount of borrowings which the corporation may undertake. The Bill also provides for a change in the name of the Industrial Credit Corporation to ICC Bank plc., for the supervision of the company by the Central Bank, for revised principal objects of the company, for the company to amend their memorandum and articles of association to accord with the changes in the Bill and for some technical matters.
The ICC's current borrowing limit of £1,000 million, which is also the amount which may be guaranteed by the Minister, has almost been reached. This limit was introduced under the terms of the Industrial Credit (Amendment) Act, 1990. I should point out that borrowing includes deposits with the company along with borrowing in the normal sense. The Bill provides for an increase in the borrowing limit to £1,300 million but leaves the guarantee limit unchanged at £1,000 million.
This Bill marks a departure therefore in that the increased amount of £300 million in ICC's borrowing powers will not be guaranteed by the State. It reflects the policy which has been in operation for some years of reducing the Exchequer's exposure through guarantees to commercial State bodies in so far as that can be achieved. Steps will be taken by ICC to ensure that the two types of borrowing will be clearly segregated and identified by lenders and depositors. I wish to make it clear that there is no change in relation to existing lenders and depositors with the ICC; their funds continue to be fully covered by the State guarantee already in place.
Before dealing with the detailed provisions of the Bill, I should like to give the House an indication of developments in relation to the corporation since 1990, when a Bill to increase ICC's borrowing limits was last before this House.
ICC are a merchant bank of some standing, particularly in the small and medium sized business sector, where they have most of their customer base. ICC have been developing along satisfactory lines. They have enjoyed a consistent run of profitability since their incorporation and have paid dividends to the Exchequer over many years. After tax profits in 1991 were £5.86 million and dividend payments increased from £1.4 million to £1.8 million. These assets amounted to over £1 billion at the year end. ICC recently published their half year figures, which showed a steady performance in profits after tax of £3.27 million and a continuation of their interim dividend, yielding over £700,000 to the Exchequer. The chairman stated at the release of these figures that he expected a satisfactory outcome for the year, in the absence of unforeseen circumstances.
ICC recently withdrew from activities which were not providing an adequate return, such as hire purchase, leasing and fund management. They are now concentrating on their core activities — term lending and trade finance to small and medium size business, treasury including foreign exchange and venture capital. In addition, they will continue their involvement as an adviser in corporate finance activities. The ICC are adopting a prudent approach to the growth of their assets rather than a push for growth; they are concentrating largely on working their existing assets to maximum effect. I am confident that the trend towards full commerciality of the ICC, which has been ongoing for some time, will continue under the direction of the new chairman, whom I recently appointed. The provisions of this Bill will help the corporation to maintain their present steady progress and enable them to meet the challenges of the post-1992 situation in the financial services area.
My predecessor announced in May 1990 that he was inviting firms to tender for a consultancy assignment on the future options available in relation to the ICC. Subsequently the consultants report that ICC would require additional capital in the years ahead which would not necessarily be available from the Exchequer and without which the future development of the company could be restricted. They found that there was no compelling strategic reason for the continued retention of the shares in ICC in State ownership. They therefore recommended that the Minister should sell his entire shareholding in ICC. The Government accepted that the option of a sale of the State's shareholding in ICC should be explored further and the consultants were employed — on a no sale no fee basis — to assess the prospects for a sale. However, no suitable purchaser of the State's shares in ICC has emerged so far. I am keeping the matter under review.
There have, of course, been some significant developments in the State banking sector since legislation relating to the ICC was last before this House. The trustee savings banks have now amalgamated. Legislation extending, inter alia, the areas of business that ACC can engage in was passed earlier this year. It will be obvious that the main sections of this Bill follow closely the lines of the ACC Bank Act, 1992. It is important to recognise, however, that there is still a substantial difference between the ICC and the ACC Bank in that the former is a merchant bank concentrating on the business sector with few retail outlets, whereas the ACC Bank is now largely a retail bank with a traditional concentration on the agricultural sector.
There has been suggestions that the State's banking activities should be amalgamated, and perhaps sold to the private sector. A simple merger of the ACC and the ICC has also been suggested. I am keeping the various options available to me under review. All I can say at this stage is that I am not ruling out any particular course of action, including a sale of ICC, should a suitable purchaser emerge.
As regards developments in the banking industry generally in recent years, we had a very interesting and thorough debate here on 11 June last. As I indicated then, legislation for the building societies, the Trustee Savings Banks, the ACC and now ICC has been introduced by the Government over the past few years. The EC Second Banking Directive will open up the Irish market to further EC competition. Steps have been taken — such as lowering primary and secondary liquidity requirements, the adjustments to the DIRT tax and new arrangements for the bank levy — aimed at improving the competitiveness of Irish banking in the new environment. The more stable economic and monetary conditions that will result from full Economic and Monetary Union will help Irish business, including the banks. The completion of the internal market and greater economic and monetary integration in the Community will create opportunities as well as challenges. The more competitive that Irish banks are in their domestic market, the more likely it is that they will be competitive in the broader European market. The financial institutions — not least the ICC — seem to me to be keenly aware of the need to increase their competitiveness in the light of the challenges ahead. Size is not necessarily the major impediment, depending on the segment of the banking market being sought by our domestic institutions, including ICC, ACC and the TSB. Indeed, some of our financial institutions, despite their relatively small size, have made good progress in markets abroad.
The Central Bank and my Department are working to ensure that we have a healthy and competitive banking sector which will be capable of meeting the challenges ahead. The availability of capital — including working capital and venture capital — from the banks, particularly for small and medium sized firms, is an issue frequently raised in recent months, not least in the debate here on 11 June. As I indicated to Senators during that debate, the Central Bank have investigated this matter at my Department's request and have assured me that there is no evidence that the banks are operating a credit squeeze. Bank lending is not constrained by capital requirements or liquidity conditions. However, both borrowers and lenders have become more cautious. It is my belief that while there are ample funds available for sound viable projects, it can be difficult to obtain finance for the more high risk type venture.
While the provision of working capital and equity finance for small and medium sized enterprises is a commercial matter for the individual banks concerned, I have exhorted the banks to act in a positive way to assist Irish business. I will be keen to monitor the banks ongoing response in this area. I am glad to note the recent initiative by the Small Firms Association in securing a particular scheme for its members with one of the main banking groups. It is notable also that ICC have long operated a venture capital arm.
Senators will recall that the banks have made available £10 million under the young entrepreneurs scheme. In the context of the Programme for Economic and Social Progress the four associated banks agreed in December last year to provide a further £15 million for the creation or development of small and medium sized businesses with employment potential. These schemes offer loans at reduced rates of interest and do not require personal security from suitable applicants. More than 220 projects have so far been assisted under these schemes. These are new business projects which in all likelihood would not have proceeded without the availability of these schemes.
Also in this general connection I can indicate that my officials have been holding discussions with the life assurance and unit fund industries regarding the impact of the DIRT changes on their products. The importance of equity investments for small and medium sized Irish industry is one of the major factors to be taken into account in regard to any changes which may emerge from the current discussions.
To return to the provisions of the Bill, I have already referred to the fact that the increase in the borrowing limit of £300 million provided for in this Bill will not be guaranteed by the State. Following the enactment of the Industrial Credit (Amendment) Act, 1990, my Department in conjunction with ICC undertook an examination of this question in so far as it relates to the corporation. As a result of this examination I am satisfied that the corporation can — and indeed should — tap the market for unguaranteed deposits. I wish to repeat that the position of depositors and lenders who already have funds with ICC is not affected by this change.
Following the passing of this Bill, ICC propose to establish a subsidiary company which will take deposits on an unguaranteed basis from the outset. Deposits with the parent company will continue to be guaranteed within the limit of £1 billion. In this way ICC will distinguish clearly between deposits which are guaranteed by the State and those which are not guaranteed. This arrangement will enable ICC to continue their normal business, but their further growth will be funded from the new unguaranteed deposits through the proposed new subsidiary. The ICC will underpin the subsidiary with their resources.
ICC are of the view — and I accept their view as they are the ones who have to operate the arrangements on the ground — that it is essential to adopt this structure. They have done their research on this matter and their considered conclusion is that this is the arrangement which will best maintain confidence in the bank. Any other arrangement could create confusion about the level of guarantee possessed by a particular depositor. It is very important not to create any uncertainities in a banking situation and ICC's proposals in this regard are designed to maintain full confidence in the ICC.
I might add that this arrangement is not part of the Bill itself, but I thought that it would be of interest to Senators to know how ICC propose to adapt to the change in the guarantee arrangements. I am confident that ICC are in a sufficiently strong financial position to make a success of this substantial change in the manner of their funding.
I now turn to the provisions of the Bill. Section 1 is the definitions section and is self explanatory. Section 2 provides for a change of name of "ICC" to "ICC Bank plc". The use of the word "bank" in ICC's title serves to emphasise its commercial orientation. It is seen as helpful from a marketing and development viewpoint. Also, in international terms, it is desirable that the word "bank" be used for ease of recognition.
Section 3 provides for the application of certain supervisory provisions contained in Central Bank legislation to the ICC at a date, or dates, to be determined by ministerial order and after consultation with the Central Bank. The supervisory provisions will be administered by the Central Bank itself; in other respects I, as Minister for Finance, will continue to exercise my existing functions with regard to ICC. 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 ICC should come within the prudential supervision of the Central Bank.
This provision is similar to a provision in the ACC Bank Act, 1992. The change has already occurred in the case of the Trustee Savings Bank 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. ICC 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. ICC have for some time now been submitting financial reports to the Central Bank on an informal basis similar to those which the bank requires of other credit institutions.
Section 4 is concerned with making explicit the powers of the corporation to engage in normal modern banking and financial transactions and to provide associated services. The existing principal objects of ICC date back to the 1933 Industrial Credit Act, which established the corporation, as amended in the 1971 Industrial Credit (Amendment) Act. These provisions required that the principal objects of the company should include dealings of the corporation with trade or industry in the State. There will be no change in ICC's traditional role as a merchant bank primarily for the small and medium sized indigenous business sector except that the scope of their operations will be somewhat enlarged. The section also provides that the exercise of the revised objects may be made subject to such conditions or limitations on amounts as may be determined by the Minister for Finance or the Central Bank, as appropriate.
The section is similar to section 5 of the ACC Bank Act, 1992. Given that both State banks are expected to operate on a commercial basis and that both will be subject to Central Bank prudential supervision, it is desirable that similar principal objects should apply to both banks.
Section 5 provides for an increase in the borrowing powers of the ICC from £1,000 million to £1,300 million. The last increase was in 1990, and the increase now proposed should last for a number of years, given ICC's concentration on existing assets, rather than the pursuit of asset growth.
Section 6 requires the ICC to amend their memorandum and articles of association to bring them into line with the provisions of this Bill.
Section 7 is a technical measure which extends the scope of the Bankers' Books Evidence Act, 1879, as amended, and the Bills of Exchange Act, 1882, as amended, to ICC. These Acts already apply to banks and building societies, and to ACC Bank, and it is desirable that ICC should be covered similarly. The first part of the section relates to the acceptance of bank records as evidence in the courts, and the second part to the rules relating to bills of exchange, cheques and promissory notes.
Section 8 gives the short title, collective citation and construction.
I commend this Bill to the House.