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Small and Medium Enterprises

Dáil Éireann Debate, Wednesday - 18 April 2012

Wednesday, 18 April 2012

Questions (122, 123)

Peadar Tóibín

Question:

108 Deputy Peadar Tóibín asked the Minister for Finance the discussions he has had with the pillar banks to promote small and medium enterprises lending. [11324/12]

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Written answers

As the Deputy is aware, the Government has imposed lending targets on the two domestic pillar banks for the three calendar years, 2011 to 2013. Both banks were required to sanction lending of at least €3 billion in 2011, €3.5 billion this year and €4 billion in 2013 for new or increased credit facilities to SMEs. I can confirm to the Deputy that both banks have achieved their 2011 targets. In addition to the lending targets imposed on the banks,the pillar banks are required to submit their lending plans to the Department and the Credit Review Office (CRO) at the beginning of each year, outlining how they intend to achieve their lending targets. My Department, in conjunction with the CRO, subsequently analyses the plan and meets the banks to discuss any issues of note. The banks also meet with my Department and the CRO on a quarterly basis to discuss progress. The monthly management meetings with the pillar banks also provide a forum for the issue of SME lending to be raised by my Department.

I should stress however that the Relationship Frameworks with the banks provide that the State will not intervene in the day-to-day operations of the banks or their management decisions including with respect to pricing and lending decisions. These frameworks are published on my Department's website at http://banking.finance.gov.ie/presentations-and-latest-documents/.

Peadar Tóibín

Question:

109 Deputy Peadar Tóibín asked the Minister for Finance the discussions he has had with the pillar banks to pass on EU interest rate reductions to small and medium enterprises borrowers. [11325/12]

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As I said in a reply to the Deputy on 22 November last, the decisions financial institutions operating in Ireland make on the interest rates they charge to customers are commercial decisions for the institutions concerned. Interest rates are determined by a broad range of factors including ECB base rates, deposit rates, market funding costs, the competitive environment, and an institution's overall funding. I have no statutory function in relation to business interest rate decisions made by individual lending institutions at any particular time.

The Financial Regulator and Deputy Governor of the Central Bank stated in his response of 11 November 2011 to the Taoiseach on the issue of passing on mortgage interest rate adjustments following ECB actions, that the power to exercise close regulatory control over retail interest rates is not sought by the Central Bank. Similar principles apply in relation to business interest rates. The Deputy Governor has indicated that the Central Bank will, within its existing powers and through suasion, engage with specific lenders which appear to have standard mortgage variable rates set disproportionate to their cost of funds.

He has indicated that experience of such controls in the past and in other countries does not encourage the Central Bank to believe that such a regime would be advantageous in net terms as the banking system recovers its normal functioning. Binding controls tend to reduce availability of credit and channel it to the most creditworthy customers, starving smaller and less secure customers from credit. The Regulator indicates that this could have a chilling effect on the entry of sound competitors into the market. By absolving banks from their responsibility to price risk accurately, binding interest rate controls would, especially during this recovery phase, impede progress towards the re-establishment of bank management practices that can ensure a healthy and free-standing banking system no longer dependent on the Government for bail-outs.

In conclusion, it is vital that the banks continue to make credit available to support economic recovery. However, it is not in the interest of the banks, businesses or the economy for finance to be provided unless the business is viable and has the capacity to meet the interest payments and repay the sum borrowed.

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