asked the Minister for Finance if he is aware of a recent directive to bank managers concerning the restriction of credit and facilities to customers; if this directive was issued at the instigation of the Central Bank; and, if so, the circumstances in which it was issued and the full terms of any such directive.
Ceisteanna — Questions. Oral Answers. - Credit Restriction.
61.
I am aware of a general guide-line on credit policy which the Central Bank issued early last month to the Associated Banks. I assume that this is what the Deputy has in mind. The guide-line, which was published in the Press on 5th June, indicated that total additional bank lending in 1969-70 should be of the order of £75 million to £80 million.
The Central Bank's advice, which was given in accordance with the functions vested in it, rests on its economic forecasts and its views of likely financial trends. It will be reviewed during the year in the light of changes in the economy. The bank has asked that particular attention should be given to ensuring that credit be reserved primarily for productive purposes, especially for exports, and should not be available to finance excessive consumer spending.
With your permission, a Cheann Comhairle, I propose to have the text of the Central Bank's credit advice circulated with the Official Report.
Following is the text:
Credit Policy 1969-70
The gross amount of additional credit provided by the Associated Banks in 1967-68 (April to April) was £64 million and in 1968-69 the increase was £106 million, much more than was considered appropriate by the Central Bank for that year. The gross additional credit provided otherwise than by way of Exchequer Bills and Government stocks was £39 million in 1967-68 and £69 million in 1968-69 (April to April in each case).
The experience of recent years will be analysed in the Central Bank's forthcoming report. For 1969-70 the aim of credit policy must be to reduce the pressure of inflation and, while sustaining a high level of economic activity, to guard against any major or continuing fall in external reserves. A lower rate of increase in total bank lending in 1969-70 than actually occurred in the past year — though higher than that originally advised — is indicated.
The Associated Banks, in the aggregate, would in any event have had to adopt a stricter lending policy than last year owing to the fall in the ratio of their liquid assets to their liabilities resulting from last year's exceptional increase in credit. The extent of this tightness of liquidity varies from one bank to another and there would be danger of an undue restraint on lending if arrangements to modify its effect were not made by the Central Bank.
On the basis of present estimates of the increase in bank deposits and in exports, of the net capital inflow and other relevant factors, the Central Bank considers it appropriate that total additional lending by the Associated Banks in 1969/70 should be of the order of £75 to £80 million, of which some £50 million may be required for public capital purposes. The estimate of the increase in bank deposits is lower than for 1968/69 and allows for the possibility of more direct use of cash resources in the private sector; therefore, the reduction envisaged in net credit creation (lending less deposits) in 1969/70 is less than that in gross credit.
It is emphasised that the credit expension indicated, which (gross and net) lies between the actual figures for 1967/68 and 1968/69, is intended as a guide-line at the outset of the year and is based on the assumption that increases in money incomes, costs and prices will be less inflationary over the year ahead than 1968/69. The possibility of fairly rapid change in the economic environment makes it particularly necessary to review credit policy every quarter and the Central Bank intends doing so to see whether an adjustment of the general guide-line is required.
Specific advice within the general guide-line will be given to the various banks. Conformity with that advice will, as heretofore, be sought on a voluntary basis but consideration is being given, in consultation with the banks, to the establishment of more definite arrangements regarding liquidity and reserves. In this and other ways it is intended to develop a context in which credit policy will in future be more effective.
The Central Bank expects particular attention to be given by the Associated Banks to ensuring that credit is reserved primarily for productive purpose, especially exports, and is not available to finance immoderate consumer spending.
Bank Ceannais na hÉireann.
5 Meitheamh 1969.
Is the Minister aware that the terms of the circular which is referred to in the question indicated that the increase in credit which would be granted would meet in full the public borrowing but that the private sector would, in fact, be reduced? Would he say whether, in the light of those circumstances, if the amount in respect of the private sector is not sufficient, consideration will be given to the needs of the private sector?
Yes, we will do everything we can to minimise the Government's taking up this credit. At the moment it does seem likely that we will be taking up a fairly considerable proportion of it, but we will do what we can to minimise that proportion and to make as much as possible available for the private sector.
According to the terms of the circular it is estimated that the public sector will get £52 million and that the private sector will only get somewhere between £25 million and £30 million.
Question No. 62 postponed.