Tuesday, 27 May 2014

Questions (148)

Lucinda Creighton

Question:

148. Deputy Lucinda Creighton asked the Minister for Finance his views on the fact that the Central Bank of Ireland in its recent report entitled, Profiling the Indebtedness of Irish SMEs, demonstrated through its sample analysis that 16.3% of SMEs have a debt-to-turnover ratio greater than one third; his views that these SMEs would likely comprise up to 125,000 employees or over 6% of total employment in Ireland; his views on whether this high number of persons employed in over-indebted small businesses are at risk of losing their jobs if the banks are forced to end their forbearance to those SMEs in arrears and defaulting on their loans in advance of the AQR process due for completion in October and the stress test conducted in co-operation with the European Banking Authority; and if he will make a statement on the matter. [23056/14]

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Written answers (Question to Finance)

As the Deputy has mentioned, the Central Bank recently published a paper as part of its "Economic Letters Series" entitled "Profiling the Indebtedness of Irish SMEs". The findings include: 34 per cent of SMEs report having no debt; The vast majority (84 per cent) of SMEs have a Debt to Turnover ratio of less than one third; Only 7 per cent of SMEs have a Debt to Turnover ratio of greater than one.

In June 2013, the Central Bank set quarterly institution-specific performance targets for covered banks to move distressed SME borrowers onto longer-term forbearance solutions. The targets set reflect the banks' capacity, processes and systems. The Central Bank has informed the officials in my Department that the banks have reported that they have met their required targets to date. This perspective has been reaffirmed by both the IMF and the European Commission who report that the workout of SME arrears is progressing and that imposed targets are being met.

Resolutions offered to SME customers in difficulty are assessed on the basis of the borrowers maximum affordability. The restructures are often complex due to multiple debt connections.  Irish banks are advancing the process of restructuring their SME loan books. I am informed by Bank of Ireland that the annual report for the year ended 31 December 2013 gives comprehensive additional asset quality disclosures on all of its Loan Portfolios from page 380 to 423, including details of forbearance measures on its SME loan portfolios from page 416. In particular, Bank of Ireland have indicated that they had reached resolution in 90% of distressed SME cases.

I am informed by AIB that disclosures in relation to its SME portfolio are contained in the Credit Risk disclosures on pages 71 to 153 of the 2013 Annual Financial Report. In particular, the AIB's results indicate a resolution level of approximately 65%. It is also worth noting that defaulted loans for both banks have reduced year-on-year.

The Central Bank's process of assessing financial institutions in their efforts to move distressed SME borrowers onto longer term sustainable solutions is an important element in assisting SMEs to potentially transition from a distressed to a more sustainable state and will continue in 2014. Additionally, the Government's enactment of legislation to allow small companies (as defined by the Companies Acts) to apply to the Circuit Court for examinership and the ongoing work of the expanded Credit Review Office are all initiatives that will assist viable SMEs in adressing their debt situation.

The Governor of the Central Bank indicated recently that the purpose of the forthcoming ECB stress tests on 128 European banks, which includes Irish banks, was to remove market and government doubts about the ability of banks to absorb losses with their own shareholders funds. It is important to highlight that the ECB Comprehensive Assessment will not get into loan restructuring. The objective of the review is focused solely on determining whether the banks have enough provisions against their loans and capital. Irish banks have just undergone such an exercise, their second in less than three years, which led to a substantial increase in their loan loss provisions at year end. As I have stated previously, I do not anticipate any capital issues for the Irish banks arising from the Comprehensive Assessment.