Richard Bruton
Ceist:3 Mr. R. Bruton asked the Minister for Enterprise and Employment the plans, if any, he has to compensate banks for losses on loans to certain businesses, as was reported recently; and if he will make a statement on the matter.
Ceisteanna—Questions Oral Answers - Loans to Small Businesses.
Paul McGrath
Ceist:48 Mr. McGrath asked the Minister for Enterprise and Employment the proposals, if any, he has to ensure that money is more readily available from the banks on suitable terms for small Irish businesses.
Proinsias De Rossa
Ceist:50 Proinsias De Rossa asked the Minister for Enterprise and Employment if he will make a statement on his meeting on 20 May 1994 with representatives of the State's major banks to discuss the possibility of a new loans scheme for small and medium sized businesses; if the State will guarantee these loans; the role, if any, for the proposed third banking force in such a scheme; and if he will make a statement on the matter.
Jim Mitchell
Ceist:53 Mr. J. Mitchell asked the Minister for Enterprise and Employment the plans, if any, he has to provide State guarantees to banks who lend to business.
I propose to take Questions Nos. 3, 48, 50 and 53 together. On 20 May I met representatives of the Irish banking community to initiate a process of closer co-operation between the Department of Enterprise and Employment and the main providers of finance to business enterprises. Among the issues discussed at this meeting was the operation of loan guarantee schemes such as those operating in the USA which benefit small US business. While this issue is being further considered by officials in my Department I have no plans to provide State guarantees to banks lending to Irish businesses. The question of a possible role for a third banking force in the context of such a scheme was not discussed.
At this meeting I also indicated the concerns expressed to me by the business community regarding the difficulties which small business operations can experience in accessing funding for their activities. Since my meeting with the banks, Ulster Bank launched, on 17 June, a scheme of long term loans — up to 20 years — for small businesses where borrowers are not required to commit the family home as security for such loans. This is a scheme which addresses a number of the particular financing needs of Irish SMEs and as such it is a very welcome initiative.
Will the Minister agree that the Government is sending out conflicting signals about its approach to banking? Is it not true to say that the Minister, the Taoiseach and his Minister of State have been highly critical of the banks' decision to impose excessive mark-ups on their lending to small business with too great a spread and to impose excessive charges? Will he agree that it is inconsistent with that stand to talk now about the taxpayer picking up the risk on loans which the banking system incurs on small business? Will he agree that it is not consistent to say that the taxpayer should carry the can for failed entities and, in the same breath, criticise the banks for excessive markups?
The answer is in the use of the word "excessive" which the Deputy used. It has been reported to us — I am sure Deputy Bruton, the main Opposition party spokesperson, has heard similar reports — that small and medium sized Irish businesses in particular are very dissatisfied with the collective relationship they have with the banks. The small business task force pinpointed this issue in a very substantial way. As a Government we have rightly brought it to the attention of the banks in a number of different ways. The Minister of State, Deputy O'Rourke, has met the banks within the context of the Consumer Credit Bill, 1994. I would have to say that the response of the banks has been quite positive in that they have responded in a competitive sense to the guaranteed £100 million loan fund introduced on foot of the budget by introducing not dissimilar schemes themselves.
I have just given the House an indication of another such response in my reply, that being the scheme launched by the Ulster Bank. In the context of the meeting I had with them, when I asked why it was they were seeking such security from small businesses, they indicated a number of reasons, including the relatively high failure rate. They went on to say that in some states in the United States — New Hampshire being the one mentioned specifically — there was a loan guarantee scheme in which the state authorities had participated. I indicated that we would be interested in looking at the details of that scheme, without any commitment. If we can ensure more business start-ups and more business survivals with the use of taxpayers' money does it really matter whether we give it in the form of a grant or a loan guarantee provided that the ultimate objective is to ensure the consolidation and development of Irish businesses leading to increased employment? The evidence of my tenure in office and that of this Government to date is that we will not be reckless with taxpayers' money.
Would the Minister not agree that the import of what the Taoiseach was saying was that a reduction in the spread, with the costs carried by the banks, was what was needed? Would he agree that what seems to be the outcome, namely, that the taxpayer will have to pick up the risk on loans to small business and not the banks, is totally at variance with what the Taoiseach and other Ministers indicated in the course of an election campaign? Would he agree that there is something cynical about the approach of Government?
No. I think both can be pursued simultaneously, that we can look for a reduction in the spread. People will argue, as the Deputy's party leader argued consistently, that the cost margins and the portion the Irish banks, particularly the four main banks, have taken is way in excess of comparable European banks. People can argue — and I would share the view — that that cost spread should be reduced and that the overall general cost of money, if one looks at the real rate of interest as against the rate of inflation, should be reduced. In the case of small and medium-sized businesses which, chronically, have difficult access to working capital or to start-up capital, according to themselves, as the Government is clearly committed to promoting such businesses, provided we are satisfied with the details the banks furnish, which is where we are at present, the use of taxpayers' money in that way, if it achieves a positive result, is totally consistent with the usage of such money to give grants to businesses to start up in the first place.
I see no proposals to reduce the spread.