asked the Minister for Finance if he is aware of the decision of the Central Bank in imposing a 1 per cent reserve asset cost on the £135 million Euro currency package which is claimed will cost an additional £1 million in interest charges as the Euro currency package will be of very little value because of all the restrictions being imposed and it now looks that the real rate that it will be issued at will be 10 per cent even though it has been borrowed at Euro rates of as low as 4½ per cent; if the Central Bank will withdraw the charge or levy; and if he will make a statement on the matter.
Written Answers. - Euro Currency Loan Schemes.
60.
The Central Bank has informed me that it has not imposed any special costs on the two Euro currency loans schemes for farmers. Banks are required to hold reserves for monetary policy reasons and in accordance with prudent banking practice. Any costs that arise as a result are normally included in the associated banks' overall margins and do not appear as a separate item.
The Central Bank has emphasised to me that it does not accept that the alleged reserve asset cost in respect of these loan schemes is as high as one percentage point. A representative figure at this junction would be about 0.25 per cent. The effect of reserve asset requirements, therefore, on the cost of loans under these schemes is insignificant. I understand the associated banks have been made aware of the Central Bank's viewpoint.
I do not agree that the schemes will be of little value to farmers or that undue restrictions or costs are being imposed. I should like to take this opportunity to clear some misconceptions that have arisen about these schemes. They are not EC schemes, as some seem to believe. The £135 million involved is being borrowed by the banks and the ACC, at the Government's request, in an EMS currency, at the lowest commercial rate of interest pertaining to those currencies in the European money markets, about 4.5 per cent. That is the wholesale rate which is not normally available to the ultimate borrowers, as the lending agencies add a margin to cover their expenses, provision for bad debts and profit.
A further margin was agreed by the farmers' organisations as the borrowers' contribution towards possible foreign currency exchange losses. This is 2 per cent in the case of the £100 million scheme. It is somewhat higher — 2.5 per cent — in the case of the £35 million scheme because of the longer period for which funds will be lent under that scheme.
Apart from this agreed margin for foreign currency exchange risk, no charge has been imposed by the Government on these schemes, which will be of substantial financial benefit to Irish farmers.