Private Members' Business. - Agricultural Credit Bill, 1987: Second Stage.

I move "That the Bill be now read a Second Time."

The purpose of the Bill is to make a number of amendments to the Agricultural Credit Act, 1978. That Act is the principal legislation governing the operations of the Agricultural Credit Corporation. It deals with the objects, constitution, functions and financing of the ACC and with the various charges which may be taken, not just by the ACC but by other banks, on land and other property as security for loans. Under the 1978 Act the ACC are limited to lending for the benefit of agriculture, horticulture or fisheries. Before discussing the Bill I would like to review in general terms the development of the ACC.

The corporation, one of Ireland's earliest State-sponsored bodies, were established in 1927 to provide a specialised credit service to agriculture. In particular it was intended that they should provide long-term credit to farmers and farm cooperatives, as this form of credit was not readily available from the commercial banks. For many years the volume of business transacted by the ACC remained small mainly because of the traditional reluctance of farmers to borrow, a reluctance which was partly due to the poor profits in agriculture.

By 1961, ACC's total assets were only £3.7 million while annual lendings were at the modest level of £0.8 million. However, there was a big change in agricultural investment in the mid-sixties, reflecting the improvement in the agricultural economy and the expectations generated by the prospect of entry into the European Economic Community. At this time, the ACC started to promote themselves as a lending agency and, as business increased, a network of district offices was established.

The growth in agricultural lending was given impetus by two pieces of legislation. The Agricultural Credit Act, 1961 increased the authorised share capital of the ACC, raised their borrowing limit, allowed them to engage in hire purchase lending and simplified the procedures for taking land as security for loans. The Agricultural Credit Act, 1965 enabled the ACC to take deposits from the public. ACC had up to then been funded by advances and equity from the Exchequer. This new source of funding enabled ACC to expand their lending without drawing on the Exchequer. As a result, annual lending grew to £4.9 million in 1965 and £17.5 million in 1972. Thereafter, with the impetus given to farming by EC membership, lending increased rapidly. New lending in the seventies peaked in 1978 at £132 million while by the end of the decade the ACC's total assets stood at £394 million.

The general economic problems of the eighties, high interest rates and an increasingly restrictive Common Agricultural Policy brought about a decline of both income and confidence within the agricultural sector. This decline has had its effect on the ACC. New lending business fell to a low of £85 million in 1983, although it has picked up since then, reaching £162 million in 1986. However, the increase in loan business in recent years has been accounted for by a substantial increase in business with the corporate food processing sector and is not due to any resurgence in loan demand by farmers. This increase in corporate lending business was one of the noteworthy responses of the corporation to diminishing profitability in their traditional area.

The factors which led to a decline in demand for credit by farmers also gave rise to difficulties with loan repayments and the consequent need for increased provisions against bad debts which, in turn, also adversely affected the corporation's profitability. The bad weather of 1985 and 1986 further exacerbated these difficulties. The need for increased profitability is the principal reason behind the Bill at present before the House.

There are three main provisions in the Bill. First, it is proposed that ACC should be empowered to lend to the non-agricultural area. Secondly, it is proposed to increase from £20 million to £35 million the statutory limit on ACC's share capital. Finally, it is proposed to increase from £10 million to £25 million the limit on the amount of loans in respect of which the Minister for Finance may guarantee the corporation against losses. I will deal with each of these provisions in turn.

Section 2 of the Bill is divided into two parts, the first of which sets out the banking activities in which the ACC may engage on a universal basis subject to such conditions as shall be determined by the Minister for Finance, after consultation with the Central Bank. This, therefore, is the provision which removes the restriction, contained in section 8 (1) (a) of the 1978 Act, of ACC's lending activities to the agricultural sector. The second part of section 2 limits the amount of non-agricultural lending which the ACC may do to 20 per cent of their business with the agricultural sector, or to such lesser amount as may be determined by the Minister for Finance.

There are a number of reasons for the proposal to permit ACC to engage in non-agricultural lending. New loan business will reduce the corporation's dependence on one particular sector — in this case a sector which is prone to cyclical peaks and troughs — and will improve profitability. The expansion of ACC's lending powers should also result in the corporation's becoming more attractive to the general public as a deposit-taking institution since, other things being equal, people tend to deposit money with institutions who can lend to them should the need arise. An increase in small deposits from the general public should both increase profitability and, in the long term, permit a reduction in lending rates.

ACC's move into non-agricultural lending would be in line with the general trend in other European countries. The French bank, Credit Agricole and the Dutch Rabobank provide two outstanding examples of agricultural banks which have diversified without any diminution of their service to agriculture.

I should say at this point that I am under no illusions about the immediate effect of this proposed new activity by the ACC, nor indeed are the ACC themselves. It will not transform the ACC's profitability overnight. I will be concerned to ensure that ACC should move cautiously until adequate experience has been gained in this new area and my Department will be monitoring the situation closely. I have already outlined the provisions in the Bill designed to ensure that non-agricultural lending by the corporation is strictly controlled. The fact that the Minister for Finance will have the power not only to control the amount of non-agricultural lending within the 20 per cent limit specified in this Bill but also to lay down such conditions as he considers appropriate will provide an adequate safeguard to ensure that ACC will always be in a position to meet the demand for agricultural credit.

I know that the concerns which I have expressed are shared by the ACC board and management and I, therefore, am confident that this venture will be successful. With the safeguards provided and with the long term potential for lower lending rates to farmers, I am also confident that the provisions of this Bill will be of benefit to ACC's core customers — the farmers of Ireland.

There is also another important dimension to this aspect of the legislation. The opportunity to develop a completely new business area will provide a significant morale boost for the management and staff of ACC who have in recent years been experiencing a decline in their core agricultural business which, in turn, has resulted in a large reduction in staff numbers. I have no doubt that the management and staff will welcome and rise to the challenge of developing profitable new business which this Bill provides.

I will now refer to the second amendment which is contained in section 4 of the Bill. The extension of ACC's lending powers was the original purpose behind this Bill but, because the limit on the corporation's share capital has been reached, I am taking the opportunity to ask the House to increase the limit from £20 million to £35 million.

Section 5 of the Bill provides for an increase from £10 million to £25 million in the amount of loans in respect of which the Minister for Finance may guarantee the corporation against losses; the existing limit has been reached in this case also as a result of guarantees of £4 million and £6 million given in respect of the 1984 and 1986 accounts respectively to supplement the corporation's bad debt provisions. To date no Exchequer money has had to be paid on foot of these guarantees given to the ACC.

I hope I have adequately explained the purposes of this Bill. If Deputies have any problems with the Bill I shall endeavour to deal with these in my reply to the debate.

I commend the Bill for the approval of the House.

(Limerick East): I welcome the Bill in so far as it goes, but it does not go far enough. I see no difficulty in Fine Gael supporting the provisions of the Bill. The Minister has outlined the background to the ACC and I will take a moment to pay tribute to the work the ACC have done over the years. When it was impossible for farmers to get credit from the main lending agencies, the ACC filled a gap in the financial markets and provided the credit that allowed farming to expand. It was necessary at the time and it benefited not only individual farmers but agriculture in general and, consequently, the country.

I appreciate the recent difficulties that have occurred. Farming is no longer the profitable activity it was in the late seventies and early eighties. There has been a downturn in profitability and a bad run of weather in the past few years and there is a difficulty of declining land values. This combination, and lack of confidence in the industry, has given rise to arrears and bad debts. I do not want to recite the problems of the ACC in the late seventies when land prices rocketed sometimes to an excessive £3,000 an acre and subsequently declined. I do not want to recite the problems of the ACC in regard to bad debts and arrears. I do not want to apportion blame for decisions that were taken. The ACC were no worse and no better than any of the banking institutions in so far as they provided money for land prices which in retrospect were seen to be exorbitant and now there are bad debts. I do not want to dwell further on that but it seems that the usual Bill that comes into the House to increase the share capital of semi-State companies normally increased them along the lines of these limits. I have no problem with the increases announced here.

However, the extra provision which the Minister is seeking to guarantee the corporation against losses seems to be quite high. They go from £10 million to £25 million in this area and this indicates how serious are the bad debts. The most recent report I had an opportunity to look at — I am sure the Minister has more recent information — is the 1985 report in which the provision for bad debts was £6.3 million. I would like the Minister to bring us up to date with the provision for bad debts in the year ending 1987. It seems the Minister is being prudent in seeking to raise the ceiling on the guarantee from £10 million to £25 million but it pinpoints the difficult situation which the ACC have been facing, are still facing as a result of bad debts and a difficulty in getting in payments due which have not yet been assigned to the bad debt category.

I would like the Minister to give us more information about the up-to-date situation in the ACC, first on the bad debts side and then on the difficulties of collecting repayments due at ACC offices all around the country. I am sure this figure is very significant although it would not yet be in the bad debt category.

The new proposals to enable the ACC to develop into the non-farming area are welcome. Obviously one response for any financial institution operating in an nonprofitable area is to expand into profitable areas. The provisions in section 2 will enable the ACC to operate, with the permission of the Minister in the normal areas in which banks operate. I have a doubt about whether they should be operating in the home mortgage area but, as I understand it, the section will be subject to consultations between the Minister and the Central Bank and it will be up to the Minister to determine, from time to time, which of the portfolios on this section will be made available to the ACC. It does not necessarily mean that as soon as this Bill becomes law all the facilities will be available immediately to the ACC but I would like the Minister to clarify that.

There is one omission from this portfolio of projected new business available to the ACC which the Minister should consider. The Minister is probably aware of the Killanin report, the report of the commission of inquiry into the thoroughbred horsebreeding industry. One of the recommendations of that was that the 1978 ACC Act would be amended to facilitate the bloodstock industry by bringing about a situation whereby the asset value of bloodstock could be used as collateral against borrowing. To do this the primary Act would have to be amended. It is a pity the Minister has not used this occasion to take on board one of the main recommendations of the Killanin report. I would ask the Minister to consider it between now and Report Stage.

For the sake of Deputies who are not here but who will read the record subsequently it would be worth while reading into it the recommendation of the Killanin committee. By way of background, there is a private company called Weatherby's with headquarters in England which keeps a general studbook and registers thoroughbreds at the moment. I now quote from pages 42-44, paragraphs 3.3.1 to 3.3.7:

3.3.1 Weatherbys' system is not designed to create a central register of ownership, which could provide title acceptable to banks in financing the breeding industry. In practice, animals are often owned by syndicates of several individuals. Weatherbys' do not document ownership details. Without an ownership register, banks are reluctant to accept the horse as collateral for loans.

3.3.2 The situation in the United States with regard to finance is more advanced. The New York Jockey Club keeps a central register of ownership of all thoroughbreds, both in training and breeding. Under the laws of individual States, financial institutions can register debts against a particular animal. Banks thus have greater security for extending finance.

3.3.3 The registration of ownership details, in an international industry where changes in ownership can be frequent, presents understandable practical difficulties for Weatherbys.

3.3.4 The development of the commercial breeding sector is however dependent on access to finance. In a situation where top-class stallions can cost many millions of pounds, sole reliance on the funds of breeders or money borrowed against their personal assets can be a major restriction. Every effort should therefore be made to move to a situation where the bloodstock itself could be pledged as security for bank finance. The Commission believes that the Irish banks would be willing to increase their involvement in the Irish breeding industry if progress could be made in the matter of title and the registration of charges.

3.3.5 Finance for bloodstock is currently governed by the Agricultural Credit Act, 1978. This Act contains certain provisions (see Appendix 13) which restrict normal supply of finance by financial institutions to the bloodstock industry. The main relevant sections are summarised as follows:—

—In order for the lender to give an effective loan under the Act, the borrower must own or have the use of land.

—The charge must be registered in the Circuit Court in each area in which the borrower owns land — rather than centrally.

—Access to the Circuit Court registers is limited to certain persons.

—The borrower can transfer ownership of the charged stock after giving seven days notice to the lender.

—Enforcement rights under the Act are unclear. It is not certain whether a lender can appoint a receiver, act himself and, or serve on the sheriff an order in the prescribed form.

Hence, there are restrictions on the type of borrower who can qualify under the Act, the registration system is prohibitively cumbersone and cannot create a presumption of "constructive notice" of the existence of a charge and thus third parties can obtain good title to the assets being offered as security before the lender is aware of the transaction....

3.3.6 To remedy the situation, it will be necessary to amend the 1978 Act to facilitate owners of bloodstock to grant specific charges over thoroughbred assets to any lender. Individuals and companies, whether landowners or not, should be treated equally as regards ability to give effective security. The distinction between "recognised" (the Agricultural Credit Corporation and most banks) and "non-recognised" lenders at present incorporated in the 1978 Act should be revised at least for bloodstock lending, where it prevents full development of the market for the provision of finance. The definition of thoroughbred bloodstock for loan purposes will need to include not only specific horses, but shares in such horses and rights to nominations.

3.3.7 An essential feature of any legislative amendment will be the provision of a central register of bloodstock mortgages of which everyone would be deemed to have notice. In the absence of such a register, it will always be possible for a third party to obtain good title to mortgaged assets which constitute the lenders security. Without good security, loans would be prohibitively expensive or unavailable.

It seems to me that with that recommendation on the table and with the traditional areas in which the Agricultural Credit Corporation are becoming increasingly more unprofitable, this would be an area where the ACC could develop quite logically to the great benefit of the country. I ask the Minister to have a look at this to see if it would be taken on board on Committee Stage. The nature of the amendments would be reasonably significant but, as he is allowing the ACC to develop in areas outside of agriculture, horticulture and fisheries, this proposition is worth exploring. I do not think the Minister's colleagues in Government will introduce a second Bill to enable this recommendation of the Killanin report to be implemented. It would be proper that it would occur now. That is an aside from the main business of the Bill but it is worth saying and the idea is worth looking at.

I would like to refer now to an area which I think is of more importance in the overall context of the ACC. There are a number of State banks, for want of a better phrase, in the country now. We have the ACC, the ICC and the Trustee Savings Banks — Cork and Limerick are amalgamated and Dublin and Waterford are amalgamated. The Trustee Savings Banks, in the final analysis, are underpinned by the Minister for Finance directly. We also have Fóir Teoranta. Fóir Teoranta is the State rescue bank and I would like to leave that out of the discussion at this stage.

There are four banking institutions which are either directly in the hands of the State as incorporated semi-State organisations or, alternatively, where the losses are underpinned and guarantees of 100 per cent are available and provided by the Minister for Finance in the case of debts as in the case of the Trustee Savings Banks.

I know the Government policy in relation to State agencies. The Government have brought forward policies to amalgamate quite a number of State agencies. This area should be seriously looked at. One of the difficulties facing the ACC now as it expands into new areas is that it will lack the expertise in the house market to get involved in the new activities. People who, at a glance over a fence, could assess the value of an acre of land or the value of 15 bullocks will not be that good in the house market because they have not got the expertise. They will not be that good either at assessing commercial propositions or industrial propositions in the non-food area. I am not taking from the expertise which is available in the ACC but it has been running on certain tracks for a long, long time. I do not think we should legislate for the ACC if we are sure that a consequence of it will be that we will have to bring more staff in to work the areas of profitability while people who are in the traditional areas of expertise would be under used.

There is a very strong case to be made for amalgamating the ICC, the Trustee Savings Banks and the ACC. As I said, Fóir Teoranta is a horse of a different colour and I do not think the State rescue bank should be involved in the same corporate unit as commercial lending agencies. I do not think there is any logical reason now that the State should operate or underpin a multiplicity of lending agencies who, in their scope and expertise, are restricted. If they were brought together there are people in the ACC who would be competent in agriculture and in food processing, in land and in livestock and there are people in the ICC who are highly experienced in commercial lending. From my experience as Minister for Industry and Commerce I know that in the ICC there are people who could assess to the highest international standard a commercial project or a proposal where venture capital would be required.

The Trustee Savings Banks are involved in the high street end of the market. They are involved in house loans, car loans, overdrafts, ATM machines and the normal provision of credit like any of the other commercial banks. They all have their own niche in the market and if we were to expand their activities there is a very strong case for bringing them all together. While each one was confined to a particular niche in the market we needed three or four. If they are all to be expanded and if they are all to be allowed to provide a range of financial activities, the first option that should be looked at is that of bringing them all together.

I do not think the present position is in line with the Minister's attitude to other semi-State organisations or that it is cost effective. It is not for the benefit of the institutions or the public that they should all retain their separate identities. I ask the Minister to look at that and to give a commitment that he will have the situation examined with a view to bringing together the financial institutions I have named, to rationalise them and then let them provide a portfolio of services right across the spectrum and compete with the AIBs and the Bank of Ireland of this world.

I never have ideological hangups about these matters. I cannot see why one large State bank, bringing together these institutions, could not compete on commercial terms under the control of the Central Bank on an absolutely level playing pitch with the Bank of Ireland, Allied Irish Banks and with any of the other big players in the market.

Finally, I would like to thank the Minister for his very full explanation here tonight. I will enumerate briefly my concerns again. First, why is the ceiling on the guarantee gone up by £15 million and, secondly, can the Minister give an indication of the present bad debts situation and the present difficulties in collecting payments due to the ACC? I would like if he would respond either now, or later, to my proposal that the financial institutions, which the State controls or underpins, should be brought together to provide the extension of services which is being proposed for the ACC in section 2 of the Bill. Finally, what is in terms of the Bill a single issue, would the Minister respond to my suggestion that the proposal of the Killanin report regarding the bloodstock industry be incorporated in the Bill on Committee Stage or would he at least have it examined and get reaction to it?

Unlike the last speaker, I must say I am most unhappy with this Bill and it is my party's intention to vote against it. We are not, I should tell you, calling a division tonight because we think Members of the House should have a more civilised occasion on which to divide on the issue. It is my view that this Bill should not be voted through and certainly it should not be voted through in the context of the speech the Minister has made in support of its being read a second time.

I am not happy at all that the full circumstances behind the promotion of this Bill in this House have been explained to us. We are in early 1988 a quarter way through the year and the report of the Agricultural Credit Corporation in respect of 1987 has not yet been made available to this House. Earlier today I may have unfairly given Deputy Noonan the wrong report in the Library——

(Limerick East): That is fine.

——but I found the 1986 report subsequently. It shows a provision for bad debts in the region of £10.6 million. I want to be assured by the Minister that the situation now is not significantly worse. It is my belief that the situation deteriorated badly in 1987 and it is also my belief that the timing of the Bill, coming in before the accounts have been made known to this House, is not entirely accidental. I believe it is a mistake for us to embark on the process of capitalising further or making further provision for the capitalisation of a semi-State body at a time when we are not aware of the up-to-date financial position.

It seems to me that to come before the Parliament of a sovereign country with a proposal to spend more money or to make it possible to invest more money in any business, be it a lending institution or a commercial institution, without an up-to-date prospectus on the company's situation, without a certificate of fitness in corporate terms as to the company's affairs and without clear indications from chartered accountants or auditors of the company or others to the effect that the company is in a viable state and is worthy of support is wrong. To come before this House looking for a licence to invest more money in it in those circumstances is wrong. I believe it is not correct for this House to embark on a Bill of this kind on the blind when we do not know the outturn for 1987 in relation to that particular company.

I believe their situation has worsened. The trend is very much against them. Their bad debt provision went up from £6.3 million in 1985 to £10.6 million in 1986 and I believe it has deteriorated further in 1987. I believe we are entitled to be told if that is the case. I find it impossible to believe — and this is what worries me about the Minister's speech — that he is not aware of the total situation in relation to the 1987 accounts. I find it difficult to believe that the accounts of this semi-State body could not be put together in a reasonable shape or form for the consideration of this House on this measure tonight and that we should not know up until last December the state of this company's affairs. In that context I believe they will show a further deterioration in the balance sheet.

I believe it is simply not right to say that the powers of the Minister to increase the State's right to guarantee the debts or loans of the company or the power of the Minister to make further investments are just incidental powers which are being sought at this stage. Even if they were incidential powers, I would want to know the financial state of the company before agreeing to these powers being given. I do not believe they are incidental powers. I believe it is a very significant thing to say of a company that you propose to increase their authorised share capital by £15 million, from £20 million to £35 million. That would almost double their share capital. I want to know in that context what case the company have to make for an increase in their capitalisation. What right have that company to seek from this House permission to increase their capitalisation by another £15 million? Why does the company need those moneys? Why should we give the Minister, as a matter of discretion, the right to subscribe those moneys as capital to that company at present?

No argument has been made for any of those propositions. In fact, two or three cursory lines have been thrown to us at the tail end of the Minister's speech on this issue. If there was absolute certainty that the company are profitable, are not going to bring in a loss for 1987 and are absolutely fine and in sound condition that would be one thing. I would resent it but I could not complain too much about it. But if it is the case that the company's profitability has been declining and that their provision for bad debts have been increasing and the earnings per share have been going down noticeably over the past three years, then, in those circumstances I believe it is only correct to say "no" to a proposition to increase their capitalisation, until such time as we have the evidence laid before us in this House that such funds not only are justifiable but are necessary. There are plenty of other things to which sums of this kind could be applied.

It is noteworthy that earnings per share in 1984 were 9.8p per share. They went down to 6.5p per share in 1985 and 1.1p per share in 1986. I do not know if there will be any earnings on the State's capital this year. Perhaps there will be, but perhaps not. Certainly I think anybody who is being asked to invest his or her savings in a particular share should know the up-to-date position. You could not float shares on any Stock Exchange without informing the potential purchasers as to what the situation was at the last year's end. No company operating in the private sector could possibly seek to raise capital in those circumstances.

I believe it is time in this House we began looking for the directors of this company to be presented before this House, at a Committee of this House if necessary — perhaps at the Joint Committee on Commercial State-Sponsored Bodies — before we go on to consider any further Stages of this Bill to find out the state of their affairs. I do not see why any of us should feel competent or justified to make a decision as to further capitalisation of this firm on the blind, on the hazard, without any knowledge as to whether the company's affairs have significantly deteriorated further, when the trend was very much downwards on the last occasion we received a report on their affairs, the 1986 accounts. I believe we are making a mistake if we think we should in these circumstances give this company increased capital.

The other main purpose of the Bill is to extend the area of operations of the Agricultural Credit Corporation. The Minister gave a potted history of the Agricultural Credit Corporation in his speech. However, one thing that strikes me on reviewing the history of the corporation is that, when they were established in 1927, it was proposed that they should be a body in which the commercial banking sector of the Irish Free State, as it then was, would play a very significant role. The State's role in the Agricultural Credit Corporation was always envisaged as merely a co-ordinating and minority role when the legislation was presented to the Dáil originally. In that sense it is similar to the Industrial Credit Corporation, where again the State only come into the matter because it was the underwriter of public share issues where the public would not take up any of the shares. In a sense the original concept of the Agricultural Credit Corporation, which was one where private capital and commercial interests would predominate, was by accident rather than by design set aside and it was not until 1942 that it was finally admitted this was to be a State body, totally funded and operated by the State and was not to be a joint effort with the private sector.

The reason I mention all that is that in 1980 the Joint Committee on Commercial State-Sponsored Bodies produced their tenth report. They did so in 1980 which, as Deputy Noonan has pointed out, was the end of a decade of considerable turmoil in Irish agriculture. The report of that committee makes instructive reading in a number of respects. The one message which came across to me from reading it was that the Agricultural Credit Corporation was at that time considered to be at a crossroads. The then Oireachtas Joint Committee on State-Sponsored Bodies believed strongly that the corporation should be put through the hoops financially and forced to get their balance sheet into better nick — to use a colloquialism — by 1985. When that programme of restructuring of their finances and getting their house in order was complete their future should be reviewed with possibly a radical change in their status in mind.

The Irish Co-operative Organisation Society made submissions to that committee. They suggested that the ACC should, in some sense, be made part of a commercial merchant bank with emphasis on agriculture, in conjunction with other agricultural and foreign banking interests. At that time the Joint Committee on State-Sponsored Bodies thought that, due to the state of the balance sheet of the Agricultural Credit Corporation, they were certainly in no position to be so transformed. The directors of the company who testified before that committee gave their view that the ACC had a very different role and had to be transformed into the dominant force — to use their phrase — in agricultural lending in this State. They also specified a programme of reform of the balance sheet of the ACC so that they would retain their profits, become more liquid and become, in general terms, more analogous to a bank in terms of their liquidity ratios, lending and so on. The question was then to be examined in 1985 as to whether or not they should be made subject to the control of the Central Bank and brought, so to speak, into the main stream of banking in this country.

During the years 1980 to 1985 it seems to me, on examination of the reports of the Agricultural Credit Corporation, that the precise opposite took place. They did not get their house in order. They embarked on a strategy to become a deposit-taking institution, to become a dominant force in agricultural lending, to change the character of the corporation quite dramatically, which was the subject matter of a U-turn in 1985-86. Very significant expenditures were made in expanding the number and location of offices and branches with particular reference to the Dublin area. I know of one place in Merrion Row which I used to haunt before it was taken over by the ACC. The best part of £1 million was spent on purchasing that premises and within four years it was closed and is now a burger joint again. That is indicative of an expansion programme which went hopelessly wrong. At the same time in 1986 there were very substantial cutbacks in staff. The strategy of the ACC seems to have changed dramatically.

We have not had in this House an up-to-date examination of the function of the Agricultural Credit Corporation. I agree with Deputy Noonan that there is scope for a much more radical rethink of what this corporation is all about. I do not believe they should be a narrow lending institution based on agriculture. It does not follow that the answer is to broaden their lending base, as Deputy Noonan rightly pointed out. It is very different to start lending money in competition with other institutions in different fields of credit from merely depending on a staff skilled in the field of agri-business lending. It seems there is a mistaken notion that the solution to ACC's problem is to widen their field of activities. They have shed a very significant number of staff. The chairman, as can be seen from his most recent reports, was looking for this kind of widening of their base but he was not asked to come before this House and justify the strategy which he set out. I am against the strategy in question. It is not right that the ACC should go into competition with other lending institutions. That is especially the case in view of the institution's record of lack of success in their own specialised area. I do not believe that because you fail in a specialised area it follows that the answer is to dilute your specialty and broaden your field of activities. That does not logically follow and neither does it make commercial sense.

The Agricultural Credit Corporation have faced very difficult circumstances, many of which have not been of their own making. It does not follow that they should be retained in their present state or that we should seek to alter them by widening their range of activities. It seems it would be much more sensible to investigate Deputy Noonan's suggestion now rather than waste taxpayers' money. Now is the time to say, do we need an ACC, do we need a super-structure on a specialised activity which give credit for agriculture and agri-business or should we transfer those functions or amalgamate them with another body which is capable of sustaining them and at the same time has the expertise to carry on other functions? I do not see why ACC should think that they have any expertise in the wider credit area. It is naïve of us as a House, without any guarantee from the Minister, to think that they have this capacity and to say that we will allow them to expand into some other field, to go from credit dairying into credit tillage, without even for one minute querying whether they have the equipment, the expertise or the know how to do these things. That kind of decision should not be put before this House without thought. This House should not take that kind of decision in the context of a Bill. What was needed before now was a White Paper explaining why it was necessary for the ACC to change direction. What we needed above all, as custodians of the people's money or the lack of it, was an up-to-date report on this corporation and their prospects.

I cannot see why we are being asked to increase the capital of a company and to expand their areas of operation when we are not told — it must be within the Minister's power to deliver this information, even on a provisional basis to this House — what the financial state of that corporation is now. The figures must be there. I do not see why a Minister moving a Bill to give rights to invest extra capital should not be in a position to tell us that in 1987 that institution made a loss, as I believe they did, but I may be wrong. The trend certainly is towards their making a loss and I would like to know how big the loss was, where it was sustained, and to what extent, even now, their provision for bad debts is adequately reflected in their accounts. I would like to know the accounting principles that underlie the provision for bad debts in their accounts and whether or not they are adequate. It is all right to say that these things are done by auditors but they are done in accordance with certain auditing policies.

I wonder if the Central Bank had free range to inspect the activities of the ACC would they be in a position to report on their profits and losses and to deal with their bad debts and doubtful debts in the way in which they have done in their accounts in recent years. I am not sure of it. I have a hunch they have not followed the practice the Central Bank would require of any bank under their aegis. In those circumstances I think it is wrong to tell this House we should give them the authority to increase capitalisation. If there were significant losses in 1987, is the House not entitled to know before we decide whether to capitalise this company further? Are we not entitled to know what the ACC's state of health was in 1987, is the House not entitled to know before we decide whether to capitalise this company further? Are we not entitled to know what the ACC's state of health was in 1987 before we tell the Minister he can give them an extra £15 million by way of capital investment? Any prudent responsible Deputy and Minister would have to satisfy himself or herself on these issues before they could make a decision on whether to support this Bill and the onus is on the Government to bring forward the evidence on which we are to be satisfied.

Looking at the Minister's speech, which is remarkable for what it does not contain, there is not a single word about the performance of ACC in 1987. The Minister has nominees on the board of that body and he must know what the state of the company's profitability was in December 1987. The Minister should be able to assure the House the order, if not the exact pound and penny, of the general state of health of this company. I believe it will transpire that the company is not as healthy as it was in previous years and that the extra capitalisation and guarantee facilities now being sought are in anticipation of a worsening of this company's affairs.

This Bill is a matter of some importance. I appreciate that by passing this Bill we do not actually give £15 million ipso facto to the ACC nor do we, by authorising the increase in the guarantee of that company's liabilities, actually worsen the taxpayers' position by the amount authorised by this Bill, but undoubtedly we do make it a matter of executive action and loosen the purse strings to allow another hand to go into it. We should be as careful about loosening the purse strings as we would be if we were actually dispensing the money and applying it irrevocably because we will not be in a position to undo an executive decision of the Department of Finance to capitalise this company at a later date. If it becomes a matter of commercial necessity, of a matter of strong political importance to strengthen the creditwordiness of this company in view of a poor set of accounts for any particular year, I have no doubt that the extra powers we are conferring will be used very smartly to prop up the balance sheet of this company. Therefore I am not satisfied the case has been made why that should be done.

I re-echo Deputy Noonan's suggestion. The ICC — I am not sure if the Trustee Savings Bank should be brought into this operation — and the ACC were similar in concept originally and both were a disappointment to the Irish Free State Government when they were established. For some reason the private sector would not capitalise them and both companies specialised in certain areas. Anyone looking at the reports would accept that the ICC have been more successful than the ACC, but that is probably due to the more varied business they were authorised to carry out. I believe those two bodies must be reviewed together to see if the State should be in the business of banking and whether the State should specialise in agricultural lending at a time when, looking at the prospects for agriculture in the European context, it is not an area into which capital should be committed.

I am not satisfied with the idea of widening ACC. An argument has not been made for that. The argument is just as strong, and I think it should be given much more weight, for restructuring ACC and for examining fundamentally where they are going. If that argument is just as strong, and if the evidence for carrying on as we are is as weak as the Minister's speech makes out, now is not the time to increase our liability in respect of this company or to send it on yet another strategy — not the 1980 strategy to which this House gave its assent — which could have disastrous results if it over extends this company's capacity, if it involves this company in business at which it is not adept, and if it is not successful in those areas.

For all those reasons we are against this Bill and think it should not be given a Second Reading. The evidence has not been brought before the House. It is premature. The Minister should have brought before the House a set of accounts for that company, a set of reasons setting out why this is the better option maybe referring to the option Deputy Noonan canvassed. For all those reasons this Bill should be rejected at this stage.

I welcome this opprotunity to speak on this Bill which is to allow the Agricultural Credit Corporation to engage in lending outside the agricultural sector, to increase the share capital of the ACC and to increase the amount of the corporation's lending business which may be guaranteed by the Minister for Finance. Generally we support the Bill and have few comments to make.

Semi-State bodies come in for a predictable amount of criticism from those parties of the right who are politically opposed to the concept of State companies. They are frequently criticised for not being able to compete with private enterprise. However, many members of the public are not aware of the restrictions placed on a number of the companies by successive Governments.

Public enterprise has made a major contribution to the economic and social development of this country, but the attitude of successive Governments has often been a begrudging one. In most cases public enterprises were established only when private enterprise had tried and failed, such as CIE and Irish Steel, or where private enterprise was unable or unwilling to invest the large amounts of money required for particular projects, such as the ESB. Much attention has been focused on the taxpayers' money which it has been necessary to put into public companies, but little or no attention has been given to the huge amounts of taxpayers' money which have been thrown at private enterprise with little or no results.

In the latest years for which figures are available, the total losses for 21 public enterprises after providing more than £400 million for financing charges were around £20 million. This compares very favourably with the £213 million spent by the IDA on helping private enterprises, not to mention the £688 million spent by State bodies and agencies during 1986 on providing a variety of aids and subsidies mainly for private business. The ACC have played a major role providing a comprehensive range of long, medium and short term credit facilities for farmers and the agri-business sector. They have played a significant role in providing goahead farmers with capital to expand and develop and have been able to offer assistance to farmers when in difficulties. However, they have suffered from having had all of their eggs in the one basket and from having been totally dependent on the agricultural sector, rendering them vulnerable to fluctuations in farming. This was seen at its most dramatic in 1985 when many farmers were unable to meet repayments resulting from a succession of bad summers, when the ACC faced a major financial crisis.

We welcome the fact that the provisions of this Bill will enable the ACC to expand and develop outside the agricultural sector which will allow them, by continuing to deal in a major way with agriculture, to diversify and have some protection against fluctuations in the agricultural sector.

There is another State company, the Industrial Credit Corporation, whose objective is to promote economic growth through the provisions of a capital and financial service to the manufacturing and service sectors of our economy. The question must be posed: will there be now a degree of overlapping between the ACC and ICC? Is there not an argument to be advanced for merging the two corporations? Such a merger would result in a corporation of a significant size with a combined capital of more than £1,100 million and a combined annual turnover of approximately £140 million. Such a corporation might form the basis on which a State bank could be developed, something to which we should be aspiring.

The two main banks between them made huge profits of more than £100 million before tax last year. Why should this profitable area be left to private enterprise? Equally, why should the ACC and ICC be restricted to the less lucrative areas of lending money simply for agriculture and industrial development? Already the ACC have some 45 branches throughout the country which could form the basis of a network of branches for a State bank. Clearly the Post Office Savings Bank would have a role to play in such a State bank, already having a huge network of branches countrywide. There is an unprecedented level of dissatisfaction with the charges and level of services provided by the commercial banks. I am sure there would be wide welcome for a move towards the development of a full State bank.

In general terms I welcome the provisions of the Bill outlined by the Minister. I particularly welcome the provision which will allow the ACC to lend in areas outside agriculture. The expansion of the range and size of lending activities and clientele must be welcomed, with the proviso that the ACC can clearly demonstrate not only their commitment to the agricultural sector but also their ability to service efficiently their developmental needs, providing the best possible package of services to farmers to enable them to adapt and adjust to rapidly changing circumstances likely to continue in future years.

In the past the ACC have experienced difficulties. As a corporation they found it difficult to adapt to the changing conditions of the last decade or so. It is my belief that the next decade, indeed the next few years, will bring further rapid changes. Those changes have been heralded already in the building societies sector and in other financial sectors. The ACC must be in a position to change and adapt to the changing circumstances prevailing. They must also be in a position to adapt to the possible consequences of the inception of the European open market by 1992.

In common with other lending institutions they loaned large amounts of money in the seventies. Then, when farmers hit a series of bad years and were unable to repay their loans, the ACC put many into receivership, taking out judgments against many others. That was not the purpose for which the corporation was established. It is my contention that they reacted too quickly, withdrawing their support, particularly to the family farmer at a time when they should have stuck with those family farms they had been supporting. There were many instances of family farms being put into receivership, placing many in dire straits. In the past they adopted a very inflexible approach. A better solution would have been to propose packages of low interest, long term loans to farmers in difficulty, especially family farms, using foreign currency available, where necessary, to restore the viability of such farms.

The ACC tended to go for quick profits, which was not the ideology behind their formation. The reason they did not make such profits was the inflexibility within the corporation itself coupled with a certain degree of financial inflexibility. If the ACC are to expand into other sectors, if the provisions of this Bill enable them to raise more funds through deposits and interest on loans, rendering them more efficient and flexible, then they are to be welcomed. However, their primary function in funding maximum development in the agricultural sector should be a clear priority. If they fail to meet their obligations the provisions of the Bill should be reviewed. There is the danger that if agriculture forms part only of the ACC business they will pump in cash in the good years, withdrawing from that sector when the going gets rough, just as the other banks and institutions do at present. I am glad to note the Minister has retained control and can review the provisions of the Bill.

The board must be comprised of people with financial and banking knowledge and experience, of people with a vested interest in the success of not just farming but the agricultural sector generally. We want people on the board with their feet firmly on the ground with the commitment and patience to achieve long term results. There was a certain degree of inflexibility on the part of the staff of ACC in the past. ACC staff at local level must be able to understand and respond to the problems and needs of farmers. There have been instances where either inflexibility or bureaucracy has caused concern for farmers. The position of farmers who have difficulties in meeting repayments and who fall into arrears should be fully and carefully assessed in consultation with the farmers and a restructured arrangement should be achieved by agreement if at all possible. It is stupid and insensitive for the ACC to demand payment of all arrears before they will consider any restructuring. Any child with a basic mathematical knowledge knows that if a farmer had the cash to pay up all the arrears he would have no problems and no need for a restructuring of loans.

One area I find difficult to come to terms with in relation to the ACC is the forward planning they indulged in, if they indulged in any, in the past. An example of this is the office in Trim, County Meath, which was opened with a great flourish in the early eighties. There was plenty of pomp and ceremony at that time but the office was closed down very quietly three to four years later, all in the name of rationalisation. If planning was being done in a proper manner I cannot understood how this office could have been opened and closed in such a short space of time. The office could have been of immense benefit to the south Meath, west Meath and north Kildare farmers as well as to depositors. The ironic part of all of this is that, since the office was closed, a branch of the Allied Irish Banks has been opened and they are currently trading successfully. The point I am making is that if the ACC cannot compete, their problems should be examined thoroughly and there should be a little more forward planning.

There is another area I should like to touch on. I understand that the percentage of money lent to the agri-business vis-à-vis the farming sector is very high. While I am not against investment in the agri-business I would not like to see the ACC withdrawing from farming and going purely into the business sector because it is a farmers' bank first and foremost. In relation to credit and loans, I suggest to the Minister that he might possibly set up regional credit committees where local people and local board members could get together so as to make the loan-making decision less centralised.

First of all I want to make a few general comments, to thank Deputies for their contributions and to deal with some of the points raised. The major thrust of Deputy McDowell's contribution was the necessity for this legislation and that Deputies did not have information on it. This legislation was first published last November. It is not something which just happened out of the blue, yesterday or the day before.

A general point which was raised by a number of speakers was the question of ACC's performance in 1987. The calendar year is the ACC's financial year also and it is normal for their accounts to be published in April or May. That will happen again this year. The main thrust of this Bill has been to allow the ACC to lend in other non-agricultural areas. As was rightly said by Deputies, that has been asked for for a number of years. It has been normal practice, during my 20 years on the scene, and I am sure long before that, when financial limits are being reached to seek the permission of the House to increase them. No more and no less than that is being done in these two other provisions, along with the extension of the lending powers of the ACC to non-agricultural areas.

I am grateful to Deputy Noonan for his welcome for the Bill. I thank him for the kind words he said about the contribution made by the ACC and their staff generally throughout the country and the assistance they have given to the farming community. Deputy Sherlock and others Deputies also said the same thing and I concur with them. A question was raised by Deputy Noonan and Deputy McDowell about the bad debts provision for 1987. This is not finalised as yet. The AGM will be held in April or early May and then all of the details in relation to 1987 will be announced. The bad debts provision for 1986 was £10.6 million. That is the latest figure I have.

A question was raised about the possibility of the collection of arrears. It is not advisable or appropriate to give details in relation to that but every effort is made, has been made and will continue to be made to bring the arrears situation up to date. Obviously, as has been the case — and I think people have complimented the ACC on this — when borrowers found themselves in difficulties, special arrangements were made and will continue to be made. Nevertheless, there will have to be a tightening up generally of the payment of arrears, whether arrears to the ACC, taxation or whatever. When people talk about bad debt provisions, the necessity for the various increases in the financial limits and why this is necessary in the ACC, I think all Deputies will know that the major banks and financial institutions generally have been increasing enormously the amount of provisions for bad debts over the past number of years because of the difficulties they have experienced generally and the recession which existed and which we have all come through.

A lot of the discussion by the three main speakers from the other side dealt with a merger between ACC, ICC and, as somebody said, the TSB — and somebody else said not the TSB. There are advantages and disadvantages associated with a merger of organisations. The final decision in each case has to be taken by balancing these, and there are quite a number of them. This question has been thoroughly examined in the Department of Finance and I agree with the conclusion that has been reached there — a merger would not be appropriate in the short to medium term. However, I have asked — and this question has been raised by a number of speakers — the chairman of both the ACC and the ICC to examine the scope for co-operation between them and to ensure that there will not be the overlapping to which I think Deputy Sherlock referred.

Questions were raised by Deputy Noonan about the provisions in section 2 if this Bill was passed and came in willynilly overnight. That is not going to happen. As I said in my Second Stage speech these will come in in a phased way, as required, with the approval of the Minister for Finance and the Central Bank. It is not a question of somebody deciding that these things will happen because section 2 of the Bill states "... for such purposes as the Minister, after consultation with the Central Bank of Ireland, may from time to time determine and subject to such conditions as the Minister considers appropriate". That is fairly well covered in that section.

Deputy Noonan also raised the question of the Killanin report on lending for the bloodstock industry and asked why we did not take the opportunity to deal with it in this legislation. As far as I can ascertain at the moment from advice, there is no law at present preventing the ACC or anybody else from lending to the bloodstock industry. Deputy Noonan's contribution made it quite clear that there was complexity involved in lending in this area and he spoke about the guarantee that would be required. There is nothing to prevent this from happening, nor do I see any necessity for new legislation to allow it to happen. It is a question of whether those who are lending will take a particular animal as collateral and too many of them will not.

(Limerick East): The horses may not be used for collateral, only the land. There are many people involved in that industry who do not own land.

If the bank decided that they would take this collateral, they could take it. There is no law preventing that.

(Limerick East): There are millions of pounds worth of assets which could be used and that would be to the benefit of the ACC and the industry.

It is a question that is being examined by the Department of Agriculture and Food at present, but it does not arise under this legislation. Concerning the specialty that would be required of the staff concerned with the ACC in the new areas of lending, I do not think there is any difficulty. As Deputy Noonan rightly said, while he raised the point here he was quite satisfied that the staff involved were expert staff doing a good job. I have no doubt that in a new area they will continue to do so.

I am not going to deal with the general objections raised by Deputy McDowell when he said that he would be voting against the legislation. I honestly believe the Deputy does not fully understand the case when he talks about extending the limit of the corporation's share capital. The reason we are doing that is that the limit has been reached. It is normal. Section 5 of the Bill provides for an increase from £10 million to £25 million of the amount of loans in respect of which the Minister for Finance may guarantee the corporation against losses. Existing limits have been reached.

Is the Minister proposing to invest any more?

This is mainly because we have given guarantees of £4 million and £6 million in respect of 1984 and 1986 accounts.

Is the Minister proposing to put in that £15 million?

Not in the least. That may or may not arise. The facts are that we have reached the limits and it is normal when legislation of this kind is going through to take the opportunity to ask the House for permission to increase those limits rather than, if the occasion did arise in any circumstance, not just connected with the ACC, having to rush in overnight, creating panic in pursuit of legislation. I cannot see that arising. Deputy McDowell was talking as if this was rushed out of the blue. This Bill was published last November and we are just getting to it now. Most Deputies who contributed have welcomed this Bill which is doing something the ACC have been seeking for some time.

Question put and declared carried.

When is it proposed to take Committee Stage?

(Limerick East): We want to look at the legislation and we may put down amendments.

Subject to agreement between the Whips, next Tuesday.

Committee Stage ordered for Tuesday, 15 March 1988.

In the absence of Deputy Enright to whom permission has been given to raise a matter on the Adjournment, I have no option but to adjourn the House.

The Dáil adjourned at 10.15 p.m. until 10.30 a.m. on Wednesday, 9 March 1988.