Dáil Éireann Debate, Wednesday - 18 April 2012
117 Deputy Micheál Martin asked the Minister for Finance if he agrees with Governor Honohan who has recently said that credit conditions for Irish small and medium enterprises are worse than any other place in Europe and that it is causing a drag on the country’s recovery; and if he will make a statement on the matter. [13650/12]
View answerI assume the Deputy is referring to the opening address by Governor Honohan to the Central Bank Conference on the SME Lending Market on 2 March 2012. Although the Governor makes the point that "credit conditions for SMEs are tougher in Ireland than anywhere elsewhere in the euro area both in terms of cost and availability", he goes on to state that the "Government has arranged to recapitalise the main banks with fiscal injections almost unmatched — as a percentage of national GDP — in world history. The Central Bank, supported by the Eurosystem, has provided open-ended liquidity to ensure that shortage of liquid assets cannot have been a constraint on lending. True, the EU-IMF agreement requires deleveraging by the banks, but the authorities are closely monitoring this deleveraging to try to ensure that, as intended and agreed with the Troika, it falls mainly on non-core business (mostly abroad) and run-offs. The intention is the deleveraging would not affect credit availability for the recovery at home."
As the Deputy is aware, one of the key priorities of the Programme for Government is to ensure that an adequate pool of credit is available to fund SMEs in the real economy during the restructuring and downsizing programme. The Government has introduced a number of policy tools to assist in this objective:
The banking system restructuring plan creates capacity for the two Pillar Banks, Bank of Ireland and AIB, to provide lending in excess of €30 billion in the next three years. SME and new mortgage lending for these banks is expected to be in the range of €16-20bn over this period. This lending capacity is incorporated into the banks' deleveraging plans which allow for repayment of Central Bank funding through asset run-off and disposals over the period to 2013.
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. Both banks achieved their lending targets for 2011.
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. The banks also meet with the Department and the CRO on a quarterly basis to discuss progress. The CRO is also available to review cases where credit facilities up to €500,000 are refused, withdrawn, or offered on unreasonable conditions.
The Central Bank published a revised statutory Code of Conduct for Business Lending to Small and Medium Enterprises (SME Code) setting out new requirements for lenders when dealing with SMEs in, or facing, financial difficulties which came into effect from 1 January 2012. A full review of the SME Code will be undertaken in 2012.
The Temporary Partial Credit Guarantee Scheme aims to provide much-needed credit to job-creating SMEs who currently struggle to get finance from the banks. It is intended to address market failure affecting commercially viable businesses in two specific situations — namely, where businesses have insufficient collateral, and where businesses operate in sectors with which the banks are not familiar — and provide a 75% State guarantee to banks against losses on qualifying loans to firms with growth and job creation potential. Initially, the scheme will facilitate up to €150m of additional lending per annum to SMEs, in addition to the lending targets set for the pillar banks. The Scheme will be demand-led, and take-up and performance will be closely monitored. For every €150million of additional lending, the Scheme is expected to benefit over 1800 businesses. The cost of the Scheme per €150million of lending is €6.38million. However this does not take into account benefits to the exchequer this lending will bring in terms of increased tax receipts and decreased social welfare payments. When these benefits are taken into account, the net gain to the Exchequer is over €25million per €150million of lending.
A Microfinance Fund to provide loans to small businesses is also being developed within the Department of Jobs, Enterprise and Innovation for establishment shortly. It is anticipated the Micro Finance Loan Fund will generate up to €100million in additional micro-enterprise lending which will benefit more than 5,000 businesses over a ten year period.
In summary, as the Governor noted in his speech in answering the question "what are the authorities doing about access to credit?", he acknowledged that the response is "a whole lot".
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.
