Essentially, the purpose of the Bill is to assist in the further growth and development of the corporation and their activities; to facilitate the Agricultural Credit Corporation's development as a bank by bringing them within the normal banking supervision of the Central Bank; and to ensure that the corporation will be in a position to meet EC regulatory requirements in the banking area.
The various provisions and amendments contained in the Bill are summarised in the explanatory memorandum which has been circulated with the Bill for the convenience of Deputies. Before moving on to discuss the contents of the Bill in some detail, I should like to say a few words by way of background about the ACC.
As the House will be aware, the ACC were established to cater for the special needs of agriculture in this country, in particular by way of the provision of long term credit not easily available from other sources. The process of growth of the ACC was a slow one, however. It was not until the sixties that the corporation began to establish themselves as a major lending agency, assisted by legislation which increased their borrowing powers and enabled them to accept deposits from the public. In this period and in the following decade, growth in agriculture was generally strong, boosted by Ireland's entry into the European Community. The subsequent economic difficulties of the early eighties impacted adversely on the agricultural sector, however and, as a consequence, on the performance of the ACC. Defaults on loans outstanding and increases in arrears seriously affected the profitability of the corporation, culminating in heavy losses in 1987. The Agricultural Credit Act, 1988, sought to help address the problems of the ACC, in particular through the granting of powers to the corporation to lend to non-agricultural sectors amounts up to 25 per cent of loans outstanding in the agricultural area.
Since 1988, the ACC have turned the corner in relation to their financial position and are now heading for their fourth successive year of increasing profitability. The application of strict lending criteria to new loans, the vigorous pursuit of arrears of payments and the contribution from new areas of lending to the income of the corporation have helped make this new, healthier position possible. It is not now considered good banking practice to confine oneself to sectoral banking or, indeed, to over-expose a loan book to a single sector. The Bill is intended to ensure that the improvement in the corporation's situation continues by making provisions to assist in the further development of the ACC, in particular through diversification. In line with Government policy on the sale of State assets, the disposal of the State's interest in the corporation will fall to be considered in due course when the time is considered appropriate.
I now turn to the provisions of the Bill itself. Sections 1 and 3 are, of course, standard provisions relating to necessary definitions to be included in the legislation. Section 2 provides for a change of name of the ACC. The new name will be "ACC Bank". Although there is no change in substance involved in this new name, it does signal a change in the direction which the corporation are taking. As part of their development and diversification plans, the ACC are seeking to attract new customers from the non-farm community. In particular, the major urban centres of population present a potential new market for the corporation's products, such as competitive home loans, cheque book and cheque card accounts, credit cards and personal loans, which were introduced in the recent past. However, market research has indicated that many urban dwellers have little or no awarnesss of ACC and their activities: in so far as knowledge of the corporation or their role is concerned, they are perceived as an organisation which relates to farming only and not of relevance to the majority of people.
The change of name, accompanied by appropriate marketing efforts, is intended to help change this "rural only" image of the Agricultural Credit Corporation. The word "bank" in the new title will put across the message to people that the ACC can offer a full range of banking services relevant both to farming and agri-business on the one hand, and personal and business customers on the other.
Section 4 provides for the application of certain supervisory provisions contained in Central Bank legislation to the corporation at a date, or dates, to be determined by Ministerial order and after consultation with the Central Bank. These provisions of course will be administered by the Central Bank in respect of the corporation while I, as Minister for Finance, will continue to exercise my existing functions with regard to the ACC. The proposed Central Bank supervision is in line with Government policy in this area, namely, that given the small scale of resources available for financial supervision of deposit-taking institutions in Ireland and given EC requirements for the regulation of financial markets, it is appropriate that a body such as the ACC should come within the appropriate prudential supervision of the Central Bank. This has occurred already in the case of the Trustee Savings Banks and building societies, and is part of the consolidation process required by the imminent completion of the internal market in financial markets with its attendant increase in competition. The board of ACC are fully supportive of this new relationship with the Central Bank and see it as an essential step on the way to becoming a competitive banking institution subject to the same rules and regulations as the other credit institutions supervised by the Central Bank. Indeed, the corporation for some time now, have been submitting financial reports to the Central Bank on a voluntary basis, similar to those which the bank requires of other credit institutions.
Section 5 is concerned with making explicit the powers of the corporation to engage in normal, modern banking and financial transactions and to provide associated services of his nature, subject to conditions which may be imposed by the authorities. To this end, section 8 (1) of the Agricultural Credit Act, 1978, is being amended and a related provision, namely, section 2 of the Agricultural Credit Act, 1988, is being repealed by section 13 (b) of this Bill. Apart from some few changes in the description of the activities which may be engaged in, the activities of the corporation covered by section 5 are the same as those enumerated in the 1978 and 1988 legislation referred to. There are two additional amendments, however, to section 8 (1) of the 1978 Act. Firstly, section 5 now provides for consultation with the Central Bank in respect of any conditions which the Minister for Finance may impose in relation to the lending and other activities of the corporation. This consultative process however, will be reversed when the Ministerial order or orders to be made under section 4 of this Bill come into effect; that is, when the Central Bank take prudential supervisory control of the ACC as provided for by section 4. The Central Bank will then assume the power to impose conditions on the corporation's activities, after consultation with the Minister for Finance, which is provided for in section 5.
The second main difference between this section and the corresponding provisions of the Agricultural Credit Acts, 1978 and 1988, is that the existing formal restriction on lending outside the agricultural sector is removed. The 1978 legislation prohibited any such lending while the 1988 Act limited such lending to 25 per cent of the corporation's lending to the agriculture sector.
This removal of the restriction on lending outside agriculture is a logical one in the development of ACC. The corporation's share of the farm lending sector has been on a downward trend in the last ten years, but overall they remain a single-sector bank with far greater exposure to this one area than their competitors. As the corporation are set to come under the supervision of the Central Bank in the near future — under section 4 of this Bill — it is necessary that the ACC should be in a position to move towards the standards which the Central Bank will wish to lay down in relation to their exposure to risk. These bank standards, for example, limit the amount which credit institutions may lend to any one borrower or associated group of borrowers or to any particular sector. However, I want to emphasise that the removal of the existing limit on non-agricultural lending by ACC will not precipitate an untoward rush into diversified lending outside agriculture. I intend, and the Central Bank are of like mind, that the development of ACC's lending in other directions will be a controlled one which is why section 5 includes the provision I have already mentioned that the lending activities of the corporation may be made subject to conditions imposed by the Minister for Finance, after consultation with the Central Bank, andvice versa, when regulations under section 4 are made.
Of course there are other reasons why the removal of the present lending strictures on ACC are necessary apart from the prudential one already mentioned. The ability of ACC to provide credit for the agricultural sector is not enhanced by limiting their opportunities to lend and gain profit in other sectors. ACC's competitors, who have by far the lion's share of the farm loan market, have no similar restrictions on their lending outside agriculture. ACC's return to profit since 1988 has been aided by their, albeit limited, powers to lend to the non-agricultural sectors and it is envisaged that extension of their ability to lend in these areas will contribute increasingly to their profitability in the future.
From the point of view of the disposal of the State's interest in the corporation in the future, if this course of action becomes appropriate, it would be foolish not to recognise that an organisation which continued to be hamstrung by restrictive lending conditions would be less likely to realise their full potential and thereby maximise the return to the State in terms of the price to be obtained for them.
However, the further diversification of ACC's lending should not be seen as a diminution of the corporation's commitment to the agriculture sector. The farming and agri-business sector is recognised as one which will continue to be the single most important strand of the corporation's activities for some considerable time.
Section 6 provides for an increase in the maximum number of directors of the corporation from seven to nine. This will allow additional expertise to be brought onto the board at a time when the ACC are at a critical stage of their development and diversification and, incidentally, will bring the corporation into line with the other State bank, ICC, who have nine board members.
Section 7 provides for an increase in the authorised share capital of the company from £35 million to £50 million. This is an enabling provision only as it relates to authorised rather than actual share capital. The total share capital subscribed for to date is £25.4 million.
Section 8 provides for an increase in the existing limit on borrowings by the corporation from £800 million to £1,000 million. It also provides that the Minister for Finance may attach conditions or limitations to such borrowings, after consultation with the Central Bank. Again, this is an enabling provision only as borrowings by the corporation, at around £628 million at present, are comfortably below the existing limit of £800 million.
Section 9 requires that the ACC alter their memorandum and articles of association in accordance with the provisions of the Bill. This is a standard provision.
Sections 10 and 11 are of a technical nature. They extend the scope of the Banker's Books Evidence Act, 1879, as amended, and section 2 of the Bills of Exchange Act, 1882, as amended, to the corporation. These Acts already apply to banks and building societies.
Section 12 provides explicit powers for the ACC to engage in guarantee-type business by the amendment of section 27 of the Insurance Act, 1989, so as to include the corporation among the institutions who are named in that section as being empowered to carry on guarantee business.
Section 13 (a) recognises that as the ACC are now engaging in the provisions of mortgages in competition with other financial institutions, exemption from payment of Land Registry and Registry of Deeds fees is no longer justified. The reason for the exemption in the first place had been recognition of the restricted nature of the activities that ACC could engage in, that is, restricted to the agricultural sector.
Section 13 (b) provides for repeal of section 2 of the Agricultural Credit Act, 1988. I have already dealt with this when talking about section 5.
Section 14, is a standard section. I hope I have explained clearly the provisions of this Bill but, of course, I shall be happy to elaborate on them if required by any Deputy.
To conclude, I should like to compliment the board, management and staff of the ACC for their work in turning the corporation around in terms of their financial performance. I am confident that this Bill will enable the corporation to make further strong advances towards becoming a modern, diversified credit institution who are capable of serving all sectors of the community equally well while retaining their long-established, important relationship with the agricultural sector.