asked the Minister for Finance if, with regard to the decision of the Irish clearing banks to introduce term-lending, he is satisfied that the new system of bank loans will not militate against small businesses which require working capital and that there will be no immediate increase in the overall rates of interest for bank loans; and if his Department were consulted prior to this decision of the Irish Banks Standing Committee.
Ceisteanna—Questions. Oral Answers. - Bank Loans.
19.
The new system of term-lending, which is being introduced by the Associated Banks, is designed to promote the more effective use of financial resources and the better management of credit. The proposals were agreed with the Central Bank before being announced by the banks. My Department was not consulted directly but I was kept informed of developments.
I see no reason to suggest that under the new system small businesses will find it any more difficult than at present to obtain accommodation from the banks. As regards interest rates, an exact appraisal of the effect of the new system on the average level cannot be made until the proportion of total borrowings in each of the four possible terms is known. As borrowings are distributed at present, however, it is clear that no immediate increase in overall interest rates is involved.
Would the Minister indicate why this change should have been introduced so suddenly and without notice to customers of the banks?
I do not think it is correct to say that it was introduced suddenly and without notice. Notice of intention to do this was given quite some time ago and the implementation of the scheme was held up because of the bank strike.
Notice was given prior to the bank strike. The bank strike was, in fact, a breach of contract by the banks with many of their customers. There was no reference to carrying out this change until last Thursday or Friday when people were suddenly told that this new decision would come into operation on 1st April. Would the Minister ensure that whatever change is effected small borrowers and people who have been accustomed to overdraft facilities will not be jeopardised by this decision?
I have no reason to believe that such people will be in any way jeopardised by the change announced but I shall certainly keep an eye on the position. I would point out that although the operative date is 1st April this will apply to new applications. In the case of people who have existing overdrafts it will be a considerable time before their arrangements are changed and on foot of the new scheme.
The announcement said at the end of one year——
——that overdraft facilities would end.
I do not think that is quite accurate. For instance, in the case of a business which normally has a requirement for a seasonal overdraft, it is envisaged that they will continue to have that facility and it will only be the longer-term credit they require that will come under the term-loan system. I think what the Deputy has in mind is that the statement said that overdrafts, as we understand them, would not operate for longer than one year. I think that is a different thing from saying that those who have overdrafts will at the end of a year become subject to this new arrangement. I cannot say precisely when because each customer will be meeting his bank manager and discussing the position with him, but it certainly will not happen overnight except in relation to new applications.
Would the increased rate of interest not render the position of the smaller man a little more difficult?
As I have indicated one cannot say with precision what the effect will be on interest rates until it is seen into what category people will come, but the indications are that there will not be an increase involved for most people because 80 per cent of the existing borrowing would come within the category that would pay the same interest as they are paying at the moment.
What about the other 20 per cent?
Taking the pattern as it exists, I have told the Deputy what the figures indicate. But this pattern may change and until one sees what pattern it settles into and into which terms it settles one cannot be precise.
Will the Minister give an assurance that small business people will not suffer?
The basis of their credit will change.
Therefore, they will be at a disadvantage.
That is misleading. Some of them may well be at a considerable advantage as a result.
Would the Minister not agree that the press release in relation to this new arrangement indicated a strong inclination towards higher overdraft rates where overdrafts were for a longer period but that they did not indicate that there would be lower overdraft rates in respect of industries that give high employment or which were involved to a large extent in export nor did it indicate the obviation of the necessity for extensive imports? In fact the press release related more to how quickly the bank could get the money back than to what the money was being used for.
I do not think that is true. By and large, people in the category to which the Deputy referred will get better terms and lower interest rates than they are getting now.
Surely the Minister will agree——
I am calling Question No. 20.
——that the fact that longer term loans will be subject to higher interest rates would mean that capital intensive industries with high employment within them will suffer?
I do not think that is true.
The Minister will realise it is true if he reads the press reports.
I take it that the 80 per cent referred to is in terms of money and not numerical count. It is reasonable to suppose that the 20 per cent embraces small business people and that these will be the people who will be paying the high interest rates. Would the Minister agree that this new term lending is for the benefit of the banks only and not for the benefit of any businesses?
I could not agree on that. Any business that is run efficiently, whether it be large or small, will stand to gain under this system.
I would not agree.