There will be a slight delay before the Minister arrives.
ACC Bank Bill, 1994: Second and Subsequent Stages.
Question proposed: "That the Bill be now read a Second Time."
I would have expected the Minister for Transport, Energy and Communication to be delayed rather than the Minister for Finance.
This is a simple technical Bill with just one section, the purpose of which is to raise the limit on the borrowings which ACC Bank is permitted to undertake. At present this limit stands at £1,000 million; I propose to raise it to £1,400 million.
I should point out that as far as the balance sheets of banks are concerned, "borrowing" includes not only what we instinctively recognise as such — that is, loans raised on the interbank markets and bonds and other debt instruments issued — but also the deposits of customers. When a bank accepts a deposit from a customer it is increasing its borrowing. This enables the bank to increase its lending and thus to increase its business. In the case of ACC Bank these customer deposits constitute the vast bulk of borrowings.
ACC Bank's recent level of growth has been such that there is a real possibility that the existing limit will be reached in the near future, perhaps by the end of the year. At the end of December 1993 actual borrowings stood at £882 million. The bank's business has grown significantly this year and it is necessary to ensure its operations are not curtailed by the present ceiling.
Before I deal with the level of the ceiling itself and the basis for the increase I am proposing, I will put the Bill into context for Senators by referring to the history and development of ACC Bank and its performance in recent years. Senators will be aware the Agricultural Credit Corporation, as it was then known, was established in 1927 to provide medium and long term finance for farmers and farming co-operatives. At that time both categories of borrower found it difficult to raise funding from other sources. The original legislation restricted the corporation's activities to the agricultural sector.
However, growth was slow. During the 1960s new legislation was introduced permitting the ACC to accept deposits as well as obtain advances from the State. The ACC quickly built up a significant deposit base and in the 1970s developed a nationwide network of branches. This wider funding base allowed the ACC to extend its lending activities in response to greater demand for agricultural credit, especially following Ireland's entry into the European Community in 1973 when the agricultural sector grew strongly.
The economic difficulties of the early 1980s adversely affected the agricultural sector with serious consequences for the ACC. Bad debts and increases in arrears reduced the corporation's profitability. The extent of these consequences, largely resulting from the corporation's confinement to agricultural lending, was apparent in the heavy losses sustained in 1987. The Agricultural Credit Act, 1988, sought to help address these problems, in particular through granting of powers to the corporation to widen the base of its operations in accordance with modern banking practice.
In the following years the ACC turned the corner and is now heading for its seventh successive year of increasing profitability. This process of recovery was aided by the passage of the ACC Bank Act, 1992, which removed entirely the remaining restriction on lending outside the agriculture sector. That Act also changed the name of the organisation to the ACC Bank plc to reflect the enhanced orientation to sectors of the economy other than agriculture and agri-business. It also increased the authorised share capital from £35 million to £50 million, and raised the limit on borrowing from £800 million to £1,000 million. Finally, the 1992 Act brought the ACC Bank within the prudential supervision of the Central Bank. This means that the ACC Bank is now subject to the same rules as apply to the other credit institutions supervised by the Central Bank. These rules relate in the main to capital adequacy, liquidity, categories of exposure, permissible charges and deposit guarantee.
As I have already indicated, an increase in the statutory borrowing limit of ACC Bank is required because without it the bank would have to cease increasing its deposits and adding to its other forms of borrowing. This would correspondingly limit its capacity to increase lending to its customers.
This impasse would obviously be unacceptable, as it would amount to imposing an unnecessary and discriminatory restriction on the bank's operations. That is why I am now proposing to raise the ceiling to accommodate the operational needs of the bank.
The proposed increase in the limit is £400 million. At the average rate of growth which has obtained in recent years, this should cover the bank's requirements for the next three or four years. However, if recent trends are maintained, the new ceiling could be reached in as little as two years.
This Bill addresses the needs of ACC Bank as they stand at present. If there are any developments in the banking sector which involve or fundamentally affect the operation of the bank, appropriate measures, including the introduction of legislation, will be taken as the need arises.
The present Bill is purely technical and is in no way related to the possible restructuring of the State banks. There are no hidden links with or implications for the restructuring of the State banks. As Senators will be aware, I have received the report of the consultants whom I appointed to advise me on the options available in respect of the goals underpinning the Programme for a Partnership Government in relation to the development of the banking sector. I am at present examining that report and hope to be in a position to bring the matter to Government at an early date.
In the interim, I have to deal with the status quo and this dictates that if the ACC Bank is not to be hampered in its development, it requires an immediate increase in its borrowing limit. It is in any case highly unlikely that any change in the position of ACC Bank, if that were what the Government should decide, could be implemented in the short period between now and the end of this parliamentary session, by which time the increases in the borrowing limit will be required if present trends continue.
This, then, is a technical Bill. I commend it to the House.
I am always very suspicious when a Minister comes to the House and emphasises that the Bill is technical. While it is strictly true that this Bill is only technical, it also has significance for the banking sector because this is the third time in the last six years that we have had an ACC Bill come before the House. We should ask ourselves why we had to have at least two technical Bills and one more substantial one on the ACC. A Bill in 1988 gave it fuller powers to expand outside the agriculture sector, a Bill in 1992 extended its borrowing limits and we now have a Bill to further extend these limits.
The Minister should answer a number of questions. Why is the limit being set at £1.4 billion? Why is it not higher? Is he likely to come back to the House, as he said in his speech, in two years time to ask us to extend this limit further? It seems unnecessary for us to go through this procedure every two or three years. This indicates that the Government has a very piecemeal and temporary — pragmatic if you like — attitude to the State banks, ACC Bank and the ICC because it does not know what it wants to do with them.
From time to time, the banks hit their ceiling on their borrowing limits and they tell the Department they must have a bigger borrowing limit, therefore a Bill must go through the House. That means it is not a technical Bill but a serious one. It also means there is serious mismanagement and lack of foresight in the Department and among the Minister and politicians about what they intend to do with the State banks. If we knew what was going to happen with State banks, we would not have to rush through this Bill every two or three years so that the bank can operate under normal commercial criteria.
Stokes Kennedy Crowley has looked at this problem and has sent a report to the Minister. We are due — in the language we are used to in politics — an early decision on this. In view of the history of this bank — it was founded in the 1920s and it had a difficult time because it lost a lot of money in the 1980s, after which it was subsidised by the Government, and then suddenly in 1988 it burst into profits — we are due an explanation about its new role. The Minister should tell us if the bank was up for sale under the last Government, as was commonly believed. Was it up for sale under the Fianna Fáil-Progressive Democrat Government, as was the ICC? Because Fianna Fáil is in Government with someone else, is it no longer for sale but up for a type of merger? It is a pity the opportunity was not taken by the Minister to tell us what is his thinking and that of the Government on this issue. Can the bank be privatised or sold? Will it not be part of this mythical and mysterious third force about which we hear so much?
It would not be fair to be totally critical of ACC Bank today in a speech of this sort because ACC Bank, having been given an opportunity in 1988 to expand into the commercial industrial world and the restrictions having been lifted from it, took full advantage of that and has been successful in turning a loss into a profit. As the Minister knows, ACC Bank returned a creditable profit last year of approximately £11 million. It has now approximately 3 per cent of the banking market share in Ireland. It has a staff of approximately 800 people. It pays the Government £2 million a year in dividends and it has made a great investment in its staff. Approximately £1,000 per member of staff per annum is made by ACC Bank in its future.
We should acknowledge its performance, particularly as ACC Bank has got the State monkey on its back and it is not operating as a normal commercial bank. Its board is appointed by the State and it has restrictions imposed on it because it is State owned both in the commercial and in the political world. In the circumstances in which it operates, ACC Bank has done well in recent years.
Perhaps the Minister could answer a question about the £11 million profits last year. According to its annual report, £1.6 million of the £11 million comes from trading investments. I think it is correct to say that this is trading gilts in the gilt market. In the normal commercial world, that is a great performance because it is an increase in profits from £500,000 to £1.6 million for ACC Bank, part of which it pays to the Government in the form of a dividend. However, it is a little absurd for a State bank to be making some of its profits out of punting against the State from gilts owned by the State and then be paying some of that money back to the Government. I would be interested to hear the Minister's comments.
What is happening here is that ACC Bank is actually making direct money trading Government stock at the expense of the Government and the taxpayer, taking it on board as a profit for itself and then paying it back to the Government in the form of a dividend. It seems absurd that the State bank should be punting in State securities. It is a circular movement which is utterly pointless because all of the money ends up in the same place. It may be good training for the commercial world but it is one of the anomalies of the State banks that they should be indulging in this sort of activity. I would be interested to hear the Minister's comments on that.
The most important issue in the debate about the future of ACC Bank is on page 12 of its annual report. The chairman of ACC Bank pays tribute to all the staff by saying that "All the employees of the Bank can take credit for these results and are to be congratulated for concentrating fully on the bank's business when other issues could have distracted their attention". That is the sort of language chairmen and chief executives of semi-State banks always use when they are sending little hints of discontent to the Government but are frightened of saying they are fed up with what is going on. They never say it in the outspoken language they might use in a private company.
If that person was the chairman of a private company he would not say anything or he would lose his head.
Is that a threat or is it a——
No, but the Senator should keep the balance——
That is a statement of fact. However, this is the language he used and the Minister knows——
There is an element of democracy when one is dealing in the State sector.
The Minister knows what the chief executive meant by that comment.
The chief executive knows what the Minister meant.
What the Minister meant was that the uncertainty surrounding the future of this and other State banks has made it more difficult for them to operate in the commercial world. The chief executive is saying that the staff have done an extremely good job in the circumstances in which ACC Bank finds itself.
ACC Bank has been lumbered with the threat of being shoved into a third force in banking against its will since the formation of this Government. Everybody knows there was a commitment in the Programme for a Partnership Government for a third force in banking, which is now causing extreme difficulty for the present Government because it knows that is not practical. It also finds that ACC Bank does not want to be a part of it, the Fianna Fáil Party does not believe in it and the Labour Party does not really know what it wants. In the middle is the poor ACC bank which is going to be kicked around from Billy to Jack. Eventually, there will be some sort of political compromise, but the people who will not be considered will be the banks who are doing their best. What the chief executive is saying is that it is difficult for the staff to operate when they could be distracted by other issues.
Unfortunately, that particular artificial institution which the State is threatening to form, but which it cannot do because nobody really wants to be part of it, is causing great difficulties. What the Government has done is to ask for a report from Stokes Kennedy Crowley. I do not quarrel with the fact that the Minister has done that because Stokes Kennedy Crowley is a reputable company and will no doubt produce a good report. Perhaps he could tell us, however, what will be the cost of this report. If any of the banks being considered — that is the TSB, ICC and ACC — wants to opt out of this extraordinary arrangement, which after all is only some sort of ideological nonsense invented by the Labour Party to put something in the Programme for a Partnership Government because they could not find anything else — perhaps he could tell us if they should get the option to do so. Maybe the Minister could give a guarantee to ICC, which I understand wants to be part of this arrangement, and ACC that if they do not want to be part of this arrangement they will not be forced to.
As the Minister will know, plenty of people are interested in buying, or merging with, ACC and ICC, but that is for very good reasons. One of the reasons ACC does not wish to be part of this clumsy conglomerate is that they see it as a mechanism for laying off staff. I find it strange that the Labour Party — the party that trumpets full employment, worries about people's jobs day and night, and wrings its hands about wages and salaries in the State sector — wants to rationalise all the State banks to such an extent that many people will be laid off and put on the dole queues. That is the only sense in rationalising TSB, ICC and ACC. The effect of such a merger will be that where there is duplication, which there undoubtedly is, between the State-owned banks, it will be removed and so more people will be unemployed.
What has happened here is an ill thought out conflict between those socialists who still remain in the Labour Party——
It is difficult to find them.
It is difficult to find them, but you find them from time to time — on the back benches I hasten to add.
In Wicklow.
There is a conflict for those who ideologically hate all banks so much, and particularly the big banks, that they want to create a third force to compete with them and teach them manners, and the difficulties they find themselves in when creating this third force efficiently in that they are going to have to lay people off and create more unemployment. It is a difficulty which Lenin, Trotsky, Marx and all the others found when they tried to create artificial State institutions. That always happens. It cannot be done in practice.
You will not create a third force in banking which will successfully compete with the banks if you do it artificially and this is what is happening here. It has taken an extraordinarily long time for this ingredient of the ill-fated Programme for a Partnership Government to come into existence because it is not really going to happen the way they promised. It sounded good at the time, and kept a few people happy on the Labour Party back benches but in practice it does not work.
The Minister will know that this bank, which is competing successfully in a small way with the major banks, not only does not want to go into a forced friendship with the other banks but it has been looked at, talked to, and examined by foreign banks. A logical arrangement has been proposed whereby a European Bank, Crédit Agricole, which has looked at ACC Bank, would get involved in a joint venture. The great advantage of a joint venture with Crédit Agricole is that the real difficulty for ACC Bank, as the chief executive says in this report, is going to be raising capital in the near future. It is difficult for a State bank to raise capital because it is hamstrung, but there is one way. The bank can go back to the Government and ask it, as the 99 per cent shareholder, to give the bank the money required for expansion. Even the Labour Party would not be able to give it any more capital. If ACC Bank is to have any future, it must lie in its ability to increase its capital base.
Crédit Agricole has offered to provide the necessary capital but the Labour Party has a terrible fear of foreigners, as they proved with Greencore and others, and is probably opposed to any such arrangement with a foreign bank. They do not like foreign capital coming to this country; they prefer to keep banks here small, cosy and provincial. This xenophobia will block this arrangement and stop the progress of ACC Bank.
That is a pity but the Minister may be able to enlighten us on pending progress. It is more likely he will say he is considering bringing that report to Government in the near future with recommendations and returning to us. maybe in two years time, looking for an extension of borrowings for ACC Bank.
I have some specific questions about this bank. The directors' fees in a State organisation of this type make it almost impossible for them to compete with the private sector. It is a problem to which nobody has produced a solution. The chief executive of this bank is paid £58,000 per annum and the directors are paid £4,000 per annum. This compares very unfavourably with the private sector. I believe the answer is to privatise this and other banks so they can compete without their hands tied behind their backs.
The Irish Permanent Building Society will be a direct competitor of this bank. It is going public tomorrow with a new arrangement whereby its chief executive will be paid £201,000 per annum and its non-executive directors will be paid £20,000 per annum. The Minister may reply by saying that these are unjustified fees and I would agree with him.
One cannot do much about it.
Exactly. However the Minister can release the directors of his own banks from the extraordinary yoke around their necks. There is no way we will get seriously competent directors on terms which are about 25 per cent the value of the best paid people in the private sector unless they are very dedicated people, which I am sure they are. This is a serious problem. I do not say it as a criticism of the Minister but as something which must be highlighted.
Bonuses in the semi-State sector are also very small while in the private sector, and in the case of the Irish Permanent, they rise to 50 per cent of annual salaries. Bonuses in the semi-State sector under the new system are in the region of 10 or 15 per cent. There are other perks available in the private sector including options and medical insurance which may or may not be available in the public sector.
All these factors act against the best interests of the State banks. While they are supposed to be competing commercially, they are competing at an enormous disadvantage. The logical answer is for the Minister to privatise or consider privatising these two banks and not continue State ownership.
I would like to ask the Minister a specific question. What instructions were given to State banks during the devaluation crisis? Were they allowed or encouraged to act freely in selling Irish pounds during that period against the wishes of the Government? I ask because at the time there was, and could be again, a difficulty for banks which were put under a great deal of moral pressure not to move against the Irish pound against their best commercial instincts. Some banks did move while others did not and there was a certain amount of unpleasantness against those who sold Irish pounds — to my mind, it was justifiable.
Presumably State banks come under a slightly different category in this case because they take direct instructions and it would be unusual for them to sell Irish pounds if the Government does not want them to do so. If they do not do so, adverse restrictions and difficulties are imposed on them which means they are non-commercial when part of their profit comes from trading in the markets. I would like the Minister to answer that question. Will State banks deal in Irish currency as freely as other banks in the future?
In the light of forthcoming legislation, it will not be too long before we must declare our interest when we listen to Senator Ross because, to say the least, he is amusing. He did at least two full flips of the circuit because he went from attacking the Labour Party to concern for employees of ACC Bank and the horrific threat of privatisation to suggesting that it should immediately be privatised. He is always great value and in a few years will have to declare that we had the privilege of listening to him and work out what financial value we could put on that.
The Minister outlined the historical background to this Bill. It is interesting to look at the history of the ACC, which was created in 1927 for precisely one of the reasons we should argue for a third force in banking. This bank was created — as in the case of ICC — because the then commercial banks were reluctant, in fact they refused downright in the case of ACC, to deal with agricultural enterprise. The State created ACC and ICC in order to put some competition into the banking sector. That is a historical fact and an interesting example of how we can move full circle.
There are good and cogent reasons, not ideological ones, for the creation of a third force in banking. Senator Ross and I would agree that if ideology and practicality were to compete, we would both support the practical rather than ideological approach to State enterprise. Arguments for and against the creation of the sustaining of State enterprise have never been informed by an ideological debate but by what is practical at the particular time.
As the Minister said, ACC has had a long and chequered history since its foundation. It was not until the 1970s that we saw any growth in the company. The company expanded its business dramatically in the 1970s, some would say imprudently. Many public representatives like the Cathaoirleach and I came across the debris of that imprudent expansion. Farmers and those in the agriculture business were encouraged by ACC to extend their credit and to behave in a manner which was imprudent. At the end of that period and into the 1980s, ACC found itself in a situation where, if it had been a private bank, it would not have been allowed to operate. It had exceeded every limitation placed on the private sector. The ACC fell from grace at that time and it has taken them a long time to rebuild that trust, particularly in the agricultural community.
The arrangements in this Bill are designed to rebuild the trust that the bank established in its 50 years of operation up to the mid-1970s. In fairness to the company and to all concerned with the company, they have done that since the 1988 legislation. Senator Ross mentioned three sets of legislation. The 1988 legislation was successful in that it allowed the company to restructure and get back on to a prudent base. Senator Ross was not suggesting that the legislation itself was a failure, but he was questioning the need to come before the Oireachtas from time to time with legislation. He is wrong in that, and I will come back to that in a moment.
The 1992 Act, which effectively restructured the company, made it more like a bank. The legislation gave the corporation the right to call itself the ACC Bank and removed the restrictions then applying to lending outside the agricultural sector. The bank was able to extend its portfolio and has done so prudently. It changed the organisation's name to ACC Bank, moving it psychologically away from agri-business or farming. It provided that the bank would come under the prudential supervision of the Central Bank in view of the bank's own behaviour in the 1970s. That was a warranted decision and a wise one. The bank is profitable at present because there have been a number of legislative changes and because a number of Ministers in different administrations have forced the bank to rethink the whole way it operates.
It would be wise at this stage in our development to look for a new role for the State banks. It is no longer logical to argue that there should be a separate industrial credit bank and a separate agricultural credit bank, both owned by the State and both in effect competing with each other. There is another course of action which could be taken now. The way to look at it, not from an ideological but from a practical point of view, is to see if the three banks — ACC, ICC and TSB — perhaps in some partnership, could be built into a third banking force. This is not said for any ideological reasons — Senator Ross knows me well enough in that regard — but it seems to me that there is a need to create an additional force in banking in this State.
Look at the issue of bank charges, for example. Every Member of this House, every member of the community who has a bank account and who is not able to keep it continuously in the black knows that we are being raided continuously by the major clearing banks. There needs to be some break in that cartel. I accept — and Senator Ross made the point very validly — that it would be very difficult to construct a third force of sufficient size to break the cartel; but some competition, even from a relative minnow in that particular field, would be better than none. The idea of a third banking force is a good idea and one which at least warrants exploration. The creation of a corporation owned partly by the State and partly by the private sector would be very prudent.
In his contribution, Senator Ross raised an issue that was raised in the other House. That is the question of the limits that are being placed in this Bill. Why a limit of £1.4 billion, he asks. Why have a limit at all? The imposition of a limit is a very prudent course of action and the Bill gets it right. It is impossible to know how many years it will take ACC to hit against the ceiling again, but I believe that it is better and more prudent, if the State is to stay in the public sector, to subject the bank to regular reviews in both Houses of the Oireachtas. If we were to increase that borrowing requirement to £2 billion, for example — Senator Ross did not mention a figure of £2 billion but we will take that as an example, it is more or less double the present limit — it would mean that it would be a very long time before there would be any reason to bring this bank before the Houses of the Oireachtas to examine its operations in detail. I accept, of course, that a committee of both Houses should be doing that, but we all know there are certain weaknesses there.
The Minister holds 100 per cent of the shares in the bank at present and the arrangement whereby the ceiling forces the Minister, and the bank, to appear before the House is good and prudent. I hope the Minister will hold fast to this £1.4 billion borrowing ceiling if anybody makes any recommendations otherwise. If he were to do otherwise it would effectively mean that this bank would be placed outside the direct scrutiny of both Houses for a long period of time. This would be a mistake, and if Senator Ross rethinks his contribution in this respect he will be aware of this.
When he was quoting from page 12 of the last ACC annual report, it appeared that Senator Ross, uncharacteristically, was going to ditch his personal interest in privatisation. If we are to go the privatisation route with this bank, something with which I would have no difficulty, and if it is able to make a positive contribution, the State should review its position from time to time, and the need for having the bank should be reviewed. If it is concluded that the bank has served its useful purpose within the public sector, that is, if it did all that it was set up to do in 1927 and subsequently, and if it would be regarded as prudent to release the funds by privatisation for other public investment, then I would not oppose this course of action. However, it would not be prudent — and in this I differ from Senator Ross — to sell off the ACC and the ICC to the best bidder, because in the longer term this would mean that such competition as they provide would effectively be taken out of the banking sector.
This is a technical Bill and it requires a great deal of discussion. In addition it raises other issues. The issue of the third banking force is one which should be discussed, and it should be discussed in an environment removed as far as possible from pure ideology. Our partners in Government and those who have argued for a third banking force have not done so purely as a piece of ideology, and it is unfair to suggest otherwise. As a proposition, it has many merits, and as a proposition it demands——
God forgive the Senator.
It would appear that Senator Ross is having some kind of attack again. The proposition in itself demands a little more rigorous examination than it has been subjected to in the House. I commend the Bill. The course of action taken by the Minister in the Bill is prudent. I agree with the imposition of a limitation or a ceiling which, if the company stays in the public sector, requires it and the Minister to return to this House and the other House for regular scrutiny. The Bill should be supported by all sides of the House.
Since 1927-28 the ACC has served the country well; it has served the farming community excellently since its establishment in the 1920s. However, where does the future of the ACC lie now? It is uncertain. How often will the Minister return to the House regarding matters such as this?
Some may consider that the proposal to raise the limit to £1,400 million is a trivial matter to put before this House and the other House. However, it is only right that such a proposal be put before the House, because in other instances the powers of public representatives have been eroded. Indeed, Senator Mooney has remarked that the power of the local representative has been eroded substantially over the past number of years.
This is one instance where the Minister and the ACC must appear before public representatives. It is only right that they should do so, as we are answerable to the people. In addition, too many agencies have been established over the past number of years which have not been answerable to anybody. Senator Mooney raised a very important matter recently, which should be debated in this House and brought to the attention of the relevant Ministers — that power should be handed back to public representatives and that we should have more powers. The powers of public representatives have been eroded over the last number of years. I am delighted that this Bill has come before us. We are able to scrutinise the functions and dealings of ACC Bank and it is answerable to this House. I concur with the Senator in this regard.
There is no doubt that ACC Bank has provided an excellent service for the farming community in particular. In 1988 its powers were expanded to areas outside of farming, as the Minister stated. I was delighted with that and it has given it the base to increase its profits and to stabilise it in the market place. It has performed excellently over the last few years. Perhaps we should give more powers to ACC Bank. It does not want to be part of a third banking force. It has performed excellently since 1988 and there is a valid reason why it should not form part of the third banking force.
In relation to the third banking force, if the TSB, ACC and ICC merged, would they give us a competitive edge and would they be competitive enough to challenge the Bank of Ireland and the AIB? I doubt it very much because they would still be a smaller banking force than the Ulster Bank. In that regard, they still would not be a major force in Irish banking.
While the programmes for competitiveness and for Government will cause some headaches if a third banking force is formed, if the ACC, ICC and TSB merge there will certainly be job losses. That, as Senator Ross pointed out, would be against all the principles of the Labour Party. I would not want to see any reduction of the staff of the ACC or ICC. Both have served the country excellently since they were formed. The ACC, in particular, has gone through some very tough times in supporting the farming community when it was in serious disarray during the early to mid 1980s. Its remit was widened in 1988 to give it extended powers and the basis to extend its banking facilities. It has done that in an exceptional fashion, for which it should be complimented.
The ICC has the facility to lend moneys to the small business community and new businesses at the reduced rate of 6 per cent in certain circumstances. I wish to ask the Minister if this facility is available to ACC Bank. If it is not, it should be because otherwise ACC Bank is working at a disadvantage. The Bank of Ireland has introduced its own incentives where it can lend money to certain small businesses and new businesses at the reduced rate of 6 per cent. The ICC can do the same.
I have no problem with granting the extra facility to increase the limits on ACC Bank's borrowings to £1,400 million. It has performed exceptionally over the last number of years and I have no doubt that it will continue to do so. We should not hinder it in any way. I wish ACC Bank the best in its efforts because I have no doubt that the functions with which we are empowering it are in good hands. We have no need to worry about ACC Bank.
I am sorry that Senator Ross has left because I note that he spent more of his time giving a lecture to the Labour Party and talking about the third banking force than on the Bill. If Senator Ross started praising the Labour Party I would be really worried because he is the kind of person whom in the country we describe as an expert on everything who knows very little about anything.
Senator McGowan has a name for a man like that.
A "boxerologist".
I will try to confine my comments to the Bill.
The Senator will not be speaking for long if that is the case.
I welcome the proposal to increase the borrowings of ACC Bank from £1,000 million to £1,400 million. It is a welcome sign that ACC Bank should be looking to do so. It is a sign that the economy, especially the agricultural sector, is on the way up. According to the Bill, the term "borrowing" means the sum total of deposits placed with ACC Bank and all other forms of borrowing. If this Bill was not passed, ACC Bank would have to cease to increase its deposits and add further to its forms of borrowing. In other words, people who wished to deposit money with ACC Bank would not be able to do so.
If the present borrowing level of £1,000 million was reached before the Bill became law it would place ACC Bank at a great disadvantage in comparison with the other banks. It would also place people who have deposited their money there over the years at a great disadvantage. If the Bill was not passed it would reduce competition between the banks, which would not be in the national interest. More competition is required in the banking sector rather than less.
ACC Bank has served this country well, especially the agricultural sector. The Minister said that this is a simple, technical Bill. It is also a commonsense Bill, which has been brought forward by a commonsense Minister. I particularly welcome the assurance given by the Minister today that:
The present Bill is purely technical and is in no way related to the possible restructuring of the State banks. There are no hidden links with or implications for the restructuring of the State banks.
I welcome this Bill.
I join in welcoming the Minister to the House. The Bill is very straightforward and I welcome it. I agree with the Minister's observations that there should not be a limit on ACC Bank's operations by virtue of the ceiling which is imposed. I also do not see anything wrong with returning to the House on a regular basis to increase that ceiling rather than leaving it open ended, as some people have suggested.
We owe a considerable debt of gratitude to ACC Bank. I can say that on a personal level because I have been a client of that bank since the late 1960s. I know that my farming operation would not have received the necessary funding if ACC Bank had not been there, which I think is true for many farmers. We do not have to go back very far to remember a time when farmers in general were treated with extreme scepticism by the Associated Banks. It is probable that they are still treated with extreme scepticism, but at one time it was almost the case that collateral was all that counted. Now, thankfully, one must show some ability to repay. I do not agree with a point made by Senator Roche that ACC Bank was introduced as a competitor to the Associated Banks. I do not think that was the case. It was introduced for a different reason — to promote the growth of the industry. It was never of a scale that it could successfully compete on a commercial level with——
I think the Senator misheard me.
I apologise if that is so but I wrote down what I thought I heard. It was not a competitor of the large Associated Banks, although it gingered them up. It allowed Irish agriculture to develop and grow when Ireland joined the European Community by giving adequate funding to farmers for productive purposes.
The Minister will correct me if I am wrong but I understand the bank enjoys approximately 2.5 per cent of the banking market and that it intends to increase its share to 4 per cent over the coming five years. It has expanded into areas outside its traditional remit but I would not like it to expand to the extent where its agricultural ethos is abandoned. The agricultural ethos, which drove the bank and its staff over several decades, was a most positive influence for national change and investment and for the benefit of the company.
The Minister pointed out that this is the seventh successive year in which ACC Bank has returned a profit. This is a welcome development for the Minister. There are other State bodies that could learn fruitful lessons from ACC Bank's management and way of operation, given that it turned itself around at a difficult time. There was a hangover of bad debt from the end of the 1970s, when there was much injudicious borrowing by farmers and others and interest rates increased to a particularly high level, and people had difficulty repaying those debts. There was a significant overhang of bad debt which was dealt with effectively. This a model in terms of looking at other State bodies.
Reference was made to the large salaries paid to people in other areas of banking and building societies. We are still entitled to expect that there are people who have enough patriotism and interest in the development of their country to make a significant input to the boards of companies, such as ACC Bank, for not a great deal of reward. I am not sure it is necessary to have substantial sums of money available to people who are prepared to serve on these boards, although that is not to say they should not be rewarded. They should be rewarded but I occasionally wonder about the extent of the reward that is required to reimburse people who should be there to work in the service of the country and help out the State.
I am a little unclear about the State guarantee to borrowers. I am sure the Minister will clarify the matter for me. How far does that guarantee to the borrowers extend? Was it restricted to £800 million or is it in excess of that figure? Does it now become £1,400 million to the depositors in ACC Bank?
It is unquestionable that the bank had to take the road it took, by diversifying into other areas, in order to survive and grow. We are all aware of what has happened to Irish agriculture over the past 20 years in terms of the decline of the numbers on the land and the decline of the business of many of the people still on the land. From that point of view, it was quite sensible that ACC Bank should look to other areas within the commercial banking sector to generate profits and create growth. It was unquestionable that growth would not continue if agriculture remained its sole business. However, I return to the point that agriculture should remain its core business rather than its sole business and it should retain its agricultural ethos.
It may be required to find a partner. I have no ideological problem with looking outside the country for a like-minded partner. One can think of plenty of examples of suitable like-minded partners for ACC Bank, such as Crédit Agricole in France. I noted a point made by the Minister in his speech. I accept that there are no hidden links with or implications for the restructuring of the State banks in terms of this legislation. The agricultural ethos is worth preserving. If ACC Bank looks for a partner, the one to seek is probably one which shares something of the same ethos in Europe and one which is a credible partner. Crédit Agricole is just one of that nature.
I hope ACC Bank continues to grow and develop and that this legislation assists it to do so. Regarding the third banking force, in the event that Ulster Bank or the National Australia Bank Group take over the TSB, there is obviously somebody left on the sideline who will be looking for a partner or who may have some predatory instincts. Perhaps they will look to ACC Bank. What are the Minister's views about linking up with partners of that nature or with partners outside the country? Much has been said about the third banking force, much of which is ideologically driven. If such a force developed I question whether it would be a significant competitor to the Associated Banks and put balance into the lending market, as we would hope. It is questionable whether it will have that effect. I welcome the legislation and it will not be obstructed on this side of the House.
I welcome this important Bill. It is a pity that those who oppose the Government use every vehicle to knock, criticise and be destructive rather than supportive.
I come from a part of Ireland which depends largely on agriculture. In that context, this is a healthy piece of legislation. If ACC Bank now finds it necessary to increase its capital provision, it is a healthy signal to the farming community. I do not want to reflect on any bank but ACC Bank weathered the storm on behalf of farmers who were caught in a difficult period. Twenty years ago people were urged to buy land at high prices. ACC Bank was to the fore in supporting the development of farms through the merger of small farms. It played a major role in that regard. ACC Bank carried many farmers through the later recession and our thanks and gratitude should go to it.
Most of us who are aware of the difficulties faced by farmers appreciate the contribution of ACC Bank down the years. I particularly welcome the healthy picture presented by the Minister. All credit is due to the Minister for his response to ACC Bank's request. This is positive legislation and I am delighted to support it. Whether one speculates that there will be a merger between ACC Bank and another bank or that ACC will be sold, everybody will want to see ACC Bank being strong enough to stand on its own and to be in a strong negotiating position.
This measure indicates that ACC Bank will be able to negotiate should the need arise, and that it will also be able to survive and continue to support the agriculture industry. This is important now as we will shortly reach a position where there will not be continuing support for agricultural development from Europe. We need a bank that understands and will take into account the difficulties of the farming community, for example, in cases where plans do not work out due to weather conditions, price changes or other factors.
It behoves all of us to be aware of the value of ACC Bank to the farming community. I am pleased with this Bill and I congratulate the Minister and the directors of the bank for their positive successful programme.
I welcome this Bill to raise the borrowing limit from £1 billion to £1.4 billion, a substantial 40 per cent rise and I can see the bank making great progress. If the Minister came back to the House in 1995 to raise the figure to £2 billion I would welcome it because it would show the vibrancy of one of our State banks.
It is a pity Senator Ross is not in the House but I was interested in his lecture on the Labour Party. He sadly missed Senator Magner — who is no doubt in Cork for the by-elections — as there might have been a little of the banter or argy-bargy between them which they enjoy. I did not indulge in that but I listened to his lecture, which took up quite an amount of his contribution, and I hope he was happy with it.
I suspect that he suffers from "Labour-itis" or "Labour-phobia"; I hope he does not waken at night with Labour nightmares.
As long as Fianna Fáil do not get them the Senator need not worry.
For a while I thought that, according to Senator Ross, the only party in Government was the Labour Party. I am glad we have a Programme for Government until 1997 and if Senator Ross reads that——
An Leas-Chathaoirleach
Senator Ross is not here to defend himself.
He might be listening on a monitor.
He could come back quickly.
It is important to open up further investment and lending in ACC Bank. If we close the door on investors or borrowers at any time they will go else where and their business will be lost. That is why I would welcome the Minister coming back here next year if he wanted to increase the amount to £2 billion because it would be a healthy sign for the bank.
The ACC, which was started in 1927 to help the farmers and the co-operatives, has done a tremendous job for the agricultural sector, particularly for the co-operatives. I come from an area where there are four co-operatives and the ACC must be praised for their help to the farmers and the farming co-operatives.
A vibrant bank with a nationwide network is important to keep its staff working. I thought Senator Ross implied that the Labour Party was the only party looking after the workers in the bank. This increase in the borrowing limit will continue the work for the staff who are doing a good job.
I welcome the Bill and congratulate the Minister on bringing it forward. The ACC was set up in 1927 to provide medium and long-term finance for farmers and farming co-operatives and it has served the agriculture sector well. At that time there was a stigma attached to borrowing money and people had to be acclimatised to it. The services provided by the county committees of agriculture at the time encouraged farmers to develop their farms to their full potential and to borrow. The ACC was helpful to the farming community in developing agriculture to its full potential.
There were occasions when farmers found themselves in trouble with the ACC and the ACC was a little hard on them. However, when one borrows money it must always be understood that one must have the capacity to pay it back. The granting of future loans depends on the repayment of debts. I know of farmers who found themselves in difficulty but the ACC was helpful and understood their position. I welcome this Bill which ensures that ACC Bank will continue to widen its business in helping the agricultural community.
I may have a vested interest in this but I always found that the ACC was good to farmers who, in order to comply with European regulations, had to upgrade the hygiene level of their dairy facilities, for example, which was very expensive. ACC Bank provides subsidised interest loans and I would like to see this continue. Subsided loans should be made available to farmers in depopulated areas so that they can get back into production and their cash flow improves.
I do not mind about a third banking force but I would like to see ACC Bank continue to operate for the benefit of the agricultural community. In 1992 it widened its operations to give finance to other sectors but it must be maintained for the farming community and the benefit of agriculture.
I add my praise to the work done by the ACC since 1927. It is one of the better establishments set up in the early days of the State. We sometimes forget the contributions made at that time by people with a lot of foresight. It is always nice to be in a position to recall those days when things were not easy and there was a lot of criticism of the decisions to set up new State institutions. I am glad the ACC has stood the test of time.
It might be appropriate to pay tribute to the founding fathers. Things have changed since then. The financial world changes rapidly, and nobody knows that better than the Minister. One week you can be up and the next week you can be down. It is always advisable to keep your eye on the financial ball. ACC Bank has diversified into other areas of operation in addition to the agricultural sector. Its business has improved since this change was made. Like other financial institutions its business suffered as a result of bad debts in the farming sector. However, it appears to have weathered the storm and to be in a good trading position.
This is a technical Bill but it offers us the opportunity to voice our opinions on the proposal regarding a third banking force which appears to have been put on the long finger. It is enough for me to hear that there is a report on the issue. That is kicking for touch. The Minister is a regular visitor to Croke Park and there is no better man to land a high ball across the stand because it takes some time to find it. Perhaps that is where the third banking force is at present.
ACC Bank is, I gather from reports, quite satisfied with its activities and it is seeking wider parameters today. I hope they are being granted those parameters for the right reasons. I wish ACC Bank well. It has done much for the farming sector and has spread its activities into other areas. It employs 800 people and makes a major contribution to employment and to the financial well being of many of our citizens.
I thank Senators for their contributions and for their overwhelming support for ACC Bank's work. I also thank the Senators for their kind remarks about the legislative changes we have made regarding the involvement of the board, the executive and the staff of ACC Bank. The latter, in their examination of these debates, will be pleased that the House takes such an interest in their affairs. Senator Dardis, in particular, picked up on the point about introducing further legislation.
The Houses of the Oireachtas cannot have it both ways. We must decide if we want to have an involvement and a say in these matters or if we do not want to know anything. We cannot say we do not want legislation introduced because we consider it too technical and nonsensical while at the same time demanding a say in these matters. These technical Bills afford the House an opportunity within the rules of having a broad ranging debate. I would have got support for setting the limit at £1.6 billion but it is better that Members should have the opportunity to discuss this within the term of at least every Dáil and if it occurs more quickly than that, so be it. That is an important point because it refers to the double-think of at least one Senator.
We have different views about how the banking sector should be organised and how different banks should develop. Senators have shown in this debate that we all share the same concern to develop policy that will advance the national interest. Senator Ross suggested that in requiring that this matter be returned to the Oireachtas every few years we are showing a lack of foresight and an ad hoc approach to policy. I am surprised the Senator thinks we should not have a say or that the approval of the Oireachtas should not be sought by a body owned by the people when it proposes to assume very substantial liabilities. I am sure he will explain that to the people.
In my opening remarks I mentioned that the £400 million increment was designed to give an interval of between two and four years before we need to address the matter again. The representative institutions of the people are entitled to have the opportunity at reasonable intervals to scrutinize and debate the activities of bodies established to carry on business in the name of the people. During the debates on this Bill in this House and in the Lower House it was noticeable that Members have a great deal of knowledge about the activities of the bank. They are familiar with what is happening and with the views of the public on the issue. That is a good thing. As far as parliamentary accountability is concerned, we should look periodically at what these institutions are doing and I appreciate the well reasoned comments of Senator Roche and Senator Dardis in that regard.
Senator Ross also referred to dealing in gilts. ACC Bank deals in gilts in the same way as any other bank. It would be wrong to restrict ACC Bank in a way other banks are not restricted. Any profits it makes in such trading derive from the secondary market and are not made at the expense of the Exchequer. Senator Ross, by highlighting ACC Bank's independence, gives lie to his other arguments that the bank is unduly fettered by official restrictions. This is another example of double-think. If the bank was restricted it would be unable to operate in the gilt market but it is not restricted and operates in the gilt market. I am not sure what the Senator wants because he changed his arguments so many times. However, in this case ACC Bank is allowed to deal in the gilt market. At the time of the currency crisis, to which Senator Ross referred, ACC Bank conducted its day-to-day treasury operations on an independent commercial basis.
It worries me that Senator Ross misunderstands how commercially operated State companies work. The Minister or the senior official from the Department does not run ACC Bank. I do not decide whether a person may be given a loan. The Senator appears to think that the bank is interfered with politically and that I am responsible for sanctioning the bank's loans. The Minister of the day has no such say. The Minister appoints the board and it runs the company on a commercial basis. The bank is successful and is making a good profit on that basis. I realise that it is hard for somebody who is opposed to 100 per cent State ownership of any enterprise to admit that such enterprises are commercially run in an independent fashion and are successful. That is very upsetting if one believes the State should own nothing.
I agree with Senator Dardis. If ACC Bank wishes to move into the agri-business or related sectors or is considering embarking on international joint ventures, that will probably be considered by the Government. What the Government will or will not do is a matter for a future debate. However, it is unfair to, on the one hand, nitpick at a successful, independent, commercial State company that is owned 100 per cent by the people just because one has an ideological view and, on the other hand, to spend the rest of one's time ideologically arguing against another party because it has a different ideological view. Apparently, it is all right to have one ideological view but not any other.
My view is probably between those two ideological views and is close to that of Senator Dardis in some of these matters. There is nothing wrong in combining the two viewpoints but that is something we have to debate. That is the third case where he is not clear in his mind about the issue.
I am glad to hear the Minister is a liberal.
Without naming a State company, I often believe the best way to resolve this question would be to put one of our notoriously unsuccessful State institutions into the private sector and place one of our successful private companies in public control and see how they have progressed ten years later. I think we would be surprised, but perhaps that is another ideological view. In any case it amuses me to listen to some people when they are confusing the issue.
As regards the emoluments of directors, Senator Ross made an unjustified attack on the calibre and competence of ACC Bank directors. He conceded that they are dedicated people and I am fully satisfied with their expertise. The quality of directors of State bodies is very high, as Senator Ross could establish if he looked at the lists of people involved.
I do not propose to give his remarks on this point too much credence but he is trying to say that if a person is not paid more than £100,000 per annum salary they are not able to do the job. I wish we could convince the public of that fact when it comes to our own profession. All State salaries are related and the salaries of directors of commercial State companies are linked to salaries of other grades.
Some State company directors have said to me the only way to escape the pay guidelines is to work in a company which is in great difficulty but if one is in a successful company one cannot breach them. I do not mean that remark in an unfair way and I can understand that frustration but as Minister for Finance I cannot break the guidelines in every case. Senator Ross is right to say there is a problem but paying everyone a huge salary is not the way to solve it.
Senators mentioned the bank's capital requirements which is as significant an issue for ACC Bank as any other. Capital is required by banks, first to enable them to satisfy the capital adequacy requirements laid down by the Central Bank in accordance with EU requirements and solvency ratio directives; and second to enable them to increase their business, which is the rationale for this Bill. The capital required by ACC Bank to increase its balance sheet by the £400 million increment provided for in this Bill will depend on a number of factors, including profitability, market conditions, the board's dividend policy and the composition of the balance sheet.
Several Senators referred to the future of the bank and of State banks in general. Any commentary by me on this matter at this time would be premature and would amount to speculation. We received the report to which Senator Ross referred on 10 October drawn up by Stokes Kennedy Crowley, Rothschilds and William Fry and Company, Solicitors, who were the consultants appointed to advise me on the available options for State banks in the context of Government policy on the banking sector.
In the light of a recommendation from the trustees of the TSB which envisages the disposal of the State's interest in that bank, I am examining the report at present and expect to be in a position to put the matter before Government as soon as possible. As I indicated on a number of occasions in recent weeks, until the Government has had the opportunity to consider the report in detail I cannot make any comment on how we will proceed in 1995 and beyond. I will, therefore, not comment on the general points but I assure Senators I will take their views into account.
In answer to Senator Ross, the chairman of ACC Bank has assured me that he and his board will accept and act upon whatever decisions the Government makes on the future of State banks. There is no ambiguity in the bank's annual report on this issue.
Senators referred to the widespread displeasure at the level of bank charges. This area is outside the remit of the Bill but Senators will be aware that the Taoiseach, other Ministers and myself have had meetings with the banks and have taken every possible opportunity to put the public's view to the chairmen and chief executives of the major banks. At one detailed meeting we discussed various aspects of the relationship between banks and their customers and how banks could best contribute to the development of the economy. This initiative is ongoing and we have arranged to meet again and consult on a more regular basis. This issue is also dealt with in the Consumer Credit Bill and I have taken note of the points made by Senators.
Senator Burke referred to the small business expansion scheme which is administered by ICC. That bank is administering the scheme because it submitted the cheapest tender and fulfilled the terms laid down by the Minister for Enterprise and Employment and myself. This was a competitive tender, not a sweetheart deal.
There was also general support for increased competition in the banking sector. I think the desirability of competition goes without saying; it is a wider issue for another day. The transparency of the bank's operation and accounting was also raised by Senators.
Mention was made of State guarantees for deposits with ACC Bank. It is true the bulk of the bank's deposits are guaranteed but in recent years ACC Bank has been successful in attracting deposits without guarantee cover. This is a clear indication of the credibility of the bank with the investing public. Senator Dardis asked about the limit; ACC Bank has found no need to increase the level of State guarantee for deposits which remains at the level of £800 million set some years ago.
Senator Townsend, Senator McGowan and others remarked positively on the efficiency and profitability of the bank and I thank them; that is gratifying for the bank and it shows a State shareholding need not be such a bad thing, as I said earlier. It also shows how positive management and a serious sense of purpose can turn around a business in difficulty and make it viable and profitable.
ACC Bank has used imagination and innovation to get substantial footholds in sectors outside its traditional base in farming and agri-business. The bank constantly states it has not abandoned agri-business; it wants to develop within that sector and in other sectors. This helps its capital base and its business as a whole. Its network has expanded and it has plans to move into other areas in the medium term, particularly technological development. ACC Bank is a serious player in some of these sectors while remaining active and profitable in the agricultural sector.
The importance of ACC in the history of Irish agriculture has been mentioned. Its presence in the sector today, while no longer as large as it was relative to other financial institutions, is still significant. The bank's ethos of personal service and its practice of tailoring schemes to individual needs has generated success and profitability. I assure Senator Kiely that the board is conscious of its role in the agricultural community and intends to continue it, regardless of other developments.
While the views of the ACC board and executive on the third banking force are well known, the board members do not want the bank to stay as it is. If it did remain in its current status a Minister at a later date might have difficulties. The board has made a policy direction and has argued about how it wants to develop but it does not want to remain as it is now. The board will continue with its plans; the Government may not agree totally with those plans and may give the board certain directions but the bank will keep agriculture as its core sector. The board deserves our congratulations and to be allowed to proceed with its business. This is precisely the purpose of this Bill.
I trust that what I have said covered the specific points identified by Senators and I will take into account the more general points made. I thank Senators from Fine Gael and the Progressive Democrats for their support of the Bill. I hope we can take the remaining Stages now because there is an urgency in allowing the bank proceed with its plans for the future.
Question put and agreed to.
Agreed to take remaining Stages today.
Bill put through Committee, reported without amendment, received for final consideration and passed.
Sitting suspended at 4.20 p.m. and resumed at 6 p.m.