The purpose of the Bill is to provide for an increase in the authorised share capital of ICC and to put in place enabling provisions to facilitate its future sale. Whatever about the bank's future sale, it is important to authorise ICC's share capital, which is a welcome move. Over the years, the ICC Bank has been a major player in the growth of small companies when many other banks would not take such risks. The bank has been a great asset to small companies. I know from talking to people who have dealt with the ICC how it has supported such companies. Last year, a sale process was initiated in the House but it fell through. In the interim, the bank has carried out a review and has shown considerable profitability – up to £23 million – in the past year. To date the State has had a good return on its investment, so one would wonder about the necessity of selling the bank. We should be careful to whom we sell the bank because it could affect the growth of small companies. Up to now, the ICC Bank has catered for a niche market, unlike larger institutions, such as the Ulster Bank and the Bank of Ireland. It is clear that banks are devoid of sentiment and invest money to obtain a return. That is the bottom line for any banking institution, but the role of the ICC Bank in the growth of small towns has been due to the success of small companies it assisted. The role of the regular banks was different. For instance, it is reckoned that the Bank of Ireland in Ballymote has £20 million on deposit, but the amount of money given out locally in the area by the bank is very small. Lending facilities and cash on deposit would normally go through larger regional centres.
Under American statute law, banks must distribute a certain amount of money in an area, depending on how much is collected in that area. The Government should examine that system. Banks are driven by profit and, clearly, the ICC Bank has played a role in the growth of the Celtic tiger. Nowadays, banks in smaller towns take in so much money on deposit, but they loan out very small amounts by comparison. I know several business people who went to local banks with fantastic ideas, but were told that their proposals were beyond the capability of the local branch and so they could not obtain funding. That is where the ICC Bank stepped in to provide equity which has been so beneficial to small businesses.
The ICC Bank's current authorised share capital of £40 million has been largely subscribed to. The bank continues to grow and as long as it remains in public ownership the shareholder must provide the necessary share capital. This is one example of public ownership doing a good job because the ICC Bank has been successful in niche marketing. Few institutions are looking after small companies. We have Enterprise Ireland, the IDA and the local enterprise boards. From my experience, the enterprise boards have very little funding – something like £20 million for all 26 boards. Some very good people are working for the enterprise boards but the funding for small companies is inadequate. The ICC Bank is independent and, while it is not devoid of proper banking criteria, it has a broader vision than other banks that are solely driven by the bottom line.
In addition, the ICC Bank has the advantage of not dealing with day to day banking transactions across the counter. This week, the Bank of Ireland announced it was no longer cashing cheques unless they were crossed and paid into an account. This gives an indication of what banks can do in a cartel position. That is what is happening in the banking sector. If someone does not have a bank account he cannot cash a cheque. Cheques now have to be paid into an account and, therefore, it is being recommended that people open accounts.
Retailers are the local bank in a real sense because they accept cheques without any guarantee and lodge them to their accounts, taking the risk of not being paid. The Bank of Ireland stated that cashing cheques takes too much time and that, rather than having people queuing up to have their wage cheques cashed, it would be better served by not cashing those cheques unless the people had an account with it or an associated institution. That was stated in the business section of last Saturday's newspaper. It was also stated that the regulation would be introduced by Bank of Ireland from this week.
While small towns may have an Ulster Bank or other bank branch as well as a Bank of Ireland branch, a cartel is still in operation. For example, if it has a difficulty or a doubt one bank will ring its opposition to check on and benchmark different matters. The ICC is different in that it is geared for small and medium-sized enterprises. I appeal to the Minister that when the ICC is sold the development and growth of small Irish companies as part of its ethos will be enshrined in the deal.
The greatest growth sector in Ireland is small companies. While a small company in France or Germany, for example, might have 300 to 400 staff, the definition of small companies in Ireland is completely different. We must never lose sight the importance of small and medium-sized enterprises. Any sector of the trade, whether manufacturing, retail or whatever else, is the backbone of the current economic success in Ireland. It is important that a lender has a vision for such development, but many of the banks in Ireland do not have such vision. They are driven by the PAYE worker's cheque lodged to his or her account with direct debits coming out automatically, so there is no real risk. Very few banks will take substantial risks. I am a major promoter of the ICC Bank because it has done good work.
In 1998, the bank made pre-tax operating profit of £23 million and it announced its interim results in April of this year which showed pre-tax profit increasing by 64% to £80.3 million and the cost to income ratio reducing to 35.8% from 47% for the same period last year. This is an excellent performance by any standards from the point of view of where the bank is coming from and the market with which it deals. The Minister of State said that if a partner with huge equity is secured it will remove the burden from the State of having to invest in the bank. However, the results show the returns for investing in small companies. It is a good performance.
Section 3 of the Bill provides for an increase in the authorised share capital of the bank from its current limit of £40 million to £80 million. As the Minister already indicated in public, it is his intention to ensure the bank remains adequately capitalised as long as it remains in State ownership.
There is the question of the role of the bank. It is important from the point of view of those working there that it is stated clearly that the bank is for sale. The "For Sale" sign was removed when the previous sale fell through. Clearly, a cartel is emerging with insurance companies buying into banks and banks selling out to insurance companies. This is a market of 4 million people and, in terms of economies of scale, the population of Manchester would exceed that. We must be extraordinarily careful.
Banks make £1 million in profit a day. Customers are charged for everything now. It can cost a business person up to £7 to lodge £1,000 to their account. It has nearly reached the stage where banks have a charge on the door. Barring that, a person is charged for everything else. If he or she wants copies of statements or an appointment or whatever, it is all charged and built into the account. Customers must pay all these charges. Inflation has been a topic for discussion and all these charges add to it because businesses, if they are to survive, must pass on these charges. Someone must pay them. I had a situation where a customer's cheque for £15 was referred and the bank made £15 on it, £7.50 from the retailer and £7.50 from the customer in bank charges.
The most important function in a bank is the credit room because it monitors any exceeded limits or debits where additional charges can be applied. Any business with a reasonable turnover pays hundreds of pounds per week to service the bank. Those charges did not apply years ago when banks made money solely on interest. A breakdown of where they make their profits now would show that most of it is from built-in charges.
The term "interest charges" is a misnomer. There is a domestic rate and a commercial rate and they are way beyond what banks would give customers – they are 3% to 4% beyond the normal buying rate. The banks are making huge returns. Rates are at 11% or 12% on overdraft facilities for businesses.
That is why the role of ICC Bank in future is important. If it is sold to one of the main banks its independence will be lost. It will become part of the larger chain and part of the philosophy of getting a return on investment. The State should be paid handsomely for an asset which has served it well. It has helped small companies and has realised the dedication and commitment of entrepreneurial business people who began with nothing and little or no State aid or funding.
No grants or benefits are available to the services sector. People in it work a 40 hour weekend, not a 40 hour week. People refer to and have a perception of those in business as "fat cats" who make a great deal of money. However, many of my friends and colleagues in business work very hard and take all the risk under huge pressure.
While I respect fully the Minister of State's position and am delighted with the equity being put into the ICC Bank, I am sure he is in no doubt about the role of the ICC to date and the huge amount of work it has done throughout the country. Many companies would not be successful today, whether in manufacturing, hotels or retailing, had the ICC not taken a risk when the associated banks would not. Most business people today do not want grants; the grant mentality is almost gone. What is needed is someone who will be sympathetic to an idea and to a region that needs growth. It is from small acorns that large oaks grow and that sums up the attitude of the ICC Bank. It has grown large oaks and has played a huge role in the development of the State over many years.
While the State may be preoccupied with selling assets, we must be careful to achieve a balance and not to leave ourselves short of valuable assets.
We have seen the situation with Eircom. Business is devoid of sentiment. ICC had a reasonable amount of sentiment but regardless of the benchmark put in place we have seen what happened in the case of Esat. Denis O'Brien has been very successful in selling his stake and can buy into another asset in which the State invested heavily in recent decades. People can buy into assets cheaply and it is amazing how devoid of sentiment they can be when they are driven by shareholders. ICC operates in a niche market and was compassionate to business people, but that could change.
Allied Irish Banks, Bank of Ireland and Ulster Bank are large consortia which buy into foreign banks, including those in London. One of our leading banks lost a large amount of money in London. This bank would not advance money to people in Ireland who were crying out for investment but was ready to invest money in London where it was ripped off by several people.
Small is profitable and small businesses are critical to this country. ICC Bank plays an important role in the small business sector and I welcome the provision regarding equity which will allow it to invest more money. The bank has a successful track record and it is important that this niche market is serviced.
The Committee of Public Accounts DIRT investigation gave us an insight into what can happen. Banks were caught with their hands in the till and have had to pay millions of pounds. These banks were crucifying many people while the DIRT irregularities were taking place.
We must encourage enterprise and those with business ideas. The Government talks about growing the economy and it is important that we never lose sight of small businesses. People who have nothing today will be very successful in years to come. These people need support from enterprise boards.
There is great emphasis on IDA-backed companies and medium-sized companies backed by Enterprise Ireland. However, there is little or no support for companies employing fewer than ten people, bar their survival instinct. If these people do not make it they become just another casualty. It is important that they are encouraged.
I welcome the Minister's measures but I am concerned that the contractual commitment given by a prospective buyer should include a provision that it will continue to work in this niche market which ICC has developed. I would not sell ICC just for the sake of getting out of a business which has been profitable for the State. The situation would be different if ICC was a liability and the money invested by the Government was at risk. However, the State is getting a return on this money. Banks get a return on their investment and the State has obtained a massive return on its investment in ICC.
