Dáil Éireann Debate, Wednesday - 10 March 2021
301. Deputy Mairéad Farrell asked the Minister for Finance the details of the recommendations from the 2019 report by a company (details supplied) on community banking that have been implemented; his plans to implement other recommendations made by the report in future; and if he will make a statement on the matter. [13352/21]
View answerAs the Deputy is aware, Indecon submitted their report on Evaluation of Concept of Community Banking in Ireland to the Department of Finance in late 2019. The report was sent to Government and published in December 2019.
The report contained 15 recommendations, grouped under the following subject areas:
- Leveraging role of state supports for SMEs infrastructure to address market gaps;
- Reducing financial exclusions and managing of existing information by credit unions, An Post and local authorities;
- Enhancing competition;
- Reducing information asymmetries and building skills; and
- Enhanced responsibility for commercial banks.
These recommendations are listed below and were a matter for a range of Departments and Agencies. The Deputy should note that Recommendations 9 and 11 matters for my Department. Following publication, I circulated the report directly to the relevant Ministers and Agencies and asked them to consider the recommendations relevant to their organisation. Any subsequent implementation would be a matter for said Departments and Agencies, based on their own considerations and who will be able to supply further information if required by the Deputy.
Recommendation 1: “Continue to target rural enterprise support in future counter-guarantee loan schemes.”
The Strategic Banking Corporation of Ireland (SBCI) operates a number of schemes on behalf of the Department of Enterprise, Trade and Employment and Department of Agriculture, Food and the Marine.
I am informed by the Department of Enterprise, Trade and Employment that the COVID-19 Credit Guarantee Scheme is the largest loan guarantee scheme in the history of the State. The Scheme provides €2 billion in lending, for terms up to five-and-a-half years and offers a range of lending products between €10,000 and €1 million at below market interest rates and is available to SMEs and small mid-caps (business with less than 500 employees). The scheme, which was developed under European Commission’s Temporary State-Aid Framework enabled the inclusion of primary producers.
The Future Growth Loan Scheme makes up to €800m in lending available to SMEs and small mid-caps. Like the COVID-19 Credit Guarantee Scheme, the Future Growth Loan Scheme is available to businesses engaged in primary agriculture and aquaculture (the farming and seafood sectors), supporting businesses in these sectors as they seek financing for long-term investment.
Recommendation 2: “Expand Microfinance Ireland’s mandate to provide enterprise loans of up to €50,000.”
I am informed by the Department of Enterprise, Trade and Employment that Microfinance Ireland provides vital support to microenterprises by filling the lending gap in the market by lending to business that cannot obtain loans from other commercial lenders. It lends to business that do not meet the conventional risk criteria applied by commercial lenders and applies interest rate charges for its lending which are not reflective of its credit risk.
With the arrival of COVID-19 in Ireland and the subsequent impact on businesses across the country, as an emergency measure Microfinance Ireland introduced the COVID-19 Loan Scheme to provide support to microenterprises directly impacted by the effects of the virus. Phase 1 of the scheme had significant demand with the equivalent of three years lending provided in a four-month period. Phase 2 of the scheme commenced in August 2020 and MFI customers can apply for a COVID-19 Business Loan up to €25,000 in addition to their existing borrowings, subject to a maximum credit exposure of €50,000.
The Department Enterprise, Trade and Employment has assured me that it will continue to work with MFI to provide appropriate loans to microenterprises.
Recommendation 3: “Promotion by Local Enterprise Offices of Micro Enterprise Loan Fund.”
Local Enterprise Offices are bodies under the aegis of the Department of Enterprise, Trade and Employment. I am informed by the Department of Enterprise, Trade and Employment that the LEOs actively work with MicroFinance Ireland to promote their loan fund. The LEOs submitted 751 loan applications to Micro Finance Ireland in 2020.The LEOs have a provisional target to submit 550 loan applications to Micro Finance Ireland in 2021.
Recommendation 4: “Set ambitious targets for regional impact of any revised Brexit loan scheme.”
I am informed by the Department of Agriculture, Food and the Marine that while there are currently no regional targets for the Brexit Loan Scheme, analysis of applications indicates a good geographical spread of beneficiaries.
I am informed by the Department of Enterprise, Trade and Employment that work is under way to scope potential options for adjustments/revisions to the Brexit Loan Scheme, however given the structure of the scheme, which is counter-guaranteed by the European Investment Fund through its InnovFin SME guarantee facility, there may be limitations on the extent of any alterations to the scheme.
Any revised Brexit Loan Scheme will be promoted across the regions.
Recommendation 5: “Consider new initiatives to support expansion of SME lending by newer platforms.”
The Strategic Banking Corporation of Ireland (SBCI) significantly expanded the number of on-lenders offering SBCI products over the course of 2020. The participation of non-bank credit providers (3 signed, 3 to sign in near future) and the inclusion of 19 Credit unions in the COVID-19 Credit Guarantee scheme (CCGS) has significantly broadened the access to guarantee schemes both by type of institution and by geographic spread, and has increased access to the target audience considerably.
The inclusion of non-bank finance providers has allowed SBCI products be delivered via new lending platforms and has brought competition and choice to the market.
SBCI also increased the number of on-lenders participating in delivering the Future Growth loan Scheme (FGLS) by two, increasing the number to six participating institutions. SBCI also has a permanent open call on its website for interested on-lenders to apply for liquidity facilities to help increase price competition and customer choice.
Recommendation 6: “Expansion of Personal Micro Credit Scheme by member-owned credit unions.”
This is a policy matter for the Minister for Social Protection.
I understand that the Personal Micro Credit Scheme (PMC) provides for small scale loans, known as "It Makes Sense" loans, ranging from €100 to €2,000, by Credit Unions to borrowers in receipt of social welfare payments who may have difficulty accessing low cost credit. Currently 107 credit unions at some 281 locations are participating in the Scheme.
An Post facilitates the repayment of these loans for social welfare recipients who receive their payment through a Post Office, by utilising the Department of Social Protection's Household Budgeting Facility. As part of a pilot scheme since Q1 2020, the Department of Social Protection has funded the weekly administrative cost for access to the Household Budgeting Facility.
Recommendation 7: “Facilitation of new providers to enhance access to credit in communities.”
This recommendation focusses on potential for the An Post or other community-based providers to increase access to credit.
My role in relation to the provision of financial services specifically by the post office network relates primarily to payment services, for which I as the Minister for Finance authorise An Post to provide. This authorisation is under the Postal and Telecommunications Services Act 1983 (Section 67) Order 2016.
For all other matters related to the post office network, I defer to the Minister for the Environment, Climate and Communication, Mr Eamon Ryan, TD. An Post is a body under the aegis of the Department of the Environment, Climate and Communications.
I understand from the Department of the Environment, Climate and Communications that An Post is transforming its retail network by delivering new products and new formats. This includes, among other things, diversifying and growing the financial services products it provides for individuals and SMEs to include loans, credit cards and more foreign exchange products, local banking in association with the major banks and a full range of State Savings products. Two new dedicated sub-brands, An Post Money and a new business-to-business brand, An Post Commerce, were launched. Investment by An Post of €50 million in the network is designed to encourage communities to use the enhanced services in their local post office.
While it is longstanding Government policy that postal services will not be directly subsidised by the Government, we remain fully committed to a sustainable post office network as a key component of the economic and social infrastructure in both rural and urban areas.
Initiatives by the SBCI are outlined above under Recommendation 5. SBCI is currently exploring a number of new initiatives in partnership with both existing and new on-lenders that will further increase the level of competition and choice in the market, particularly in relation to emerging opportunities associated with the Green agenda and energy efficiency.
Recommendation 8: “Development of initiatives by local authorities as part of digital strategies to assist individuals to apply online for banking services.”
Policy on local authorities is the responsibility of the Minister for Housing, Local Government and Heritage.
Recommendation 9: “Support the Credit Union Market to deliver Expanded Range of Community Banking Services.”
Credit Union policy is a responsibility under my Department. Revised Central Bank lending regulations were enacted on 1 January 2020 which materially expanded the lending capacity of the sector, including for mortgage and SME lending. The sector had a combined mortgage and SME loan book of €344 million at end 2020. More recently, I welcomed the announcement that nineteen credit unions have been approved to participate in the COVID-19 Credit Guarantee Scheme (CGS).
The Government is supportive of credit unions who have the financial strength, the competence and the capability, undertaking more SME and mortgage lending. However, the decision to lend is to be made by the board of each individual credit union, taking into account their own specific commercial, risk appetite and regulatory factors.
I am also aware that many credit unions have improved their digital offerings. In 2016, the Central Bank defined and described a suite of additional services known as MPCAS, under which approved credit unions may offer personal current accounts with debit cards, overdrafts and a wide range of payment services within an appropriate risk framework. To date, 54 credit unions have been approved to provide MPCAS.
I am also aware of a number of collaborative projects underway to support finance for retro-fitting and agri-lending, as well as collaborative projects being developed in the areas of SME lending, insurance and investment in social housing. These are all positive examples of how many credit unions are widening their products and services for their members.
It should also be noted that the Government has committed to a review of the policy framework for credit unions in the Programme for Government. This project is already well advanced.
Recommendation 10: “An Post to explore and discuss with its parent Government Department, NewEra, and, where appropriate, the Department of Finance, the possibility of investing in partner financial organisations, where such investment is commercially viable and where it would enhance competition in lending market.”
Please see information provided on Recommendation 7.
Recommendation 11: “Extend Exemption for New Community Banking Entrants from Notification of Charges for 5 Years.”
This recommendation is still under consideration by officials in my Department. Indecon accepted that the current 3 year exemption is not a major barrier. The extent of any additional attraction for new community banking entrants is limited and has to be balanced against the potential impact on consumers dealing with such new entrants.
Recommendation 12: “Development of Technology Based Lending Tool Kit by Enterprise Ireland and Local Enterprise Offices.”
Please see information provided on Recommendation 13.
Recommendation 13: “Advisory supports by Local Enterprise Offices to include assistance with preparation of lending applications.”
Enterprise Ireland and Local Enterprise Offices are bodies under the aegis of the Department of Enterprise, Trade and Employment. I am informed by the Department of Enterprise, Trade and Employment that The LEOs offer financial mentoring which helps firms with the preparation of lending applications. The LEOs also offer financial training which upskills small business owners and managers to be in a position to prepare their own loan applications.
Recommendation 14: “Skillnet Ireland to offer analysis of lending requirements as a component in their Management Development Programmes.”
Skillnet Ireland is a State agency under the aegis of the Department of Further and Higher Education, Research, Innovation and Science.
Recommendation 15: "Commercial Banks should consider the establishment of an increased number of Community Banking Hubs or provide alternative methods of banking services delivery in areas where branch closures may have hindered access to banks.”
This recommendation is a matter for the commercial banks and the Deputy will be aware that decisions in regards to operational matters are the sole responsibility of the boards and management of the individual banks which are run on an independent and commercial basis. Furthermore, the independence of banks in which the State has a shareholding is protected by Relationship Frameworks which are legally binding documents that cannot be changed unilaterally. These frameworks are publicly available and were insisted upon by the European Commission to protect competition in the Irish market.
However, I am advised that the Central Bank's Consumer Protection Code 2012 (the Code) states that a bank must not, through its policies, procedures, or working practice, prevent access to basic financial services. The Central Bank adopts a ‘technology neutral’ approach meaning that the same principles of regulation, including the rules of the Code, apply equally to both digital and traditional delivery environments.
Branch closures are always a matter of regret, and I as Minister, would hope that closures are kept to the minimum necessary for financial sustainability. Where there are branch closures, the Central Bank’s Consumer Protection Code must be complied with. Requirements include immediate notification to the Central Bank, at least two months notice to affected consumers and either ensuring all branch business is properly completed prior to closure or informing as to how continuity of service will be provided. Notwithstanding this, I do expect that any bank closing branches will do everything it can to mitigate the impacts of the branch closures on local communities, including technology and the use of alternative means of service delivery. In this regard, I note Bank of Ireland has agreed a new partnership with An Post which will allow personal and business customers use their local post office for a range of banking services – including to withdraw cash and make cash and cheque lodgements – at no additional cost.
