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Seanad Éireann díospóireacht -
Thursday, 18 Dec 2008

Vol. 193 No. 3

Banking Sector Regulation.

I thank the Cathaoirleach for allowing me to raise this important matter, namely, the need for the Minister for Finance to outline the plans he has, if any, to put pressure on banks to make more funds available to small businesses.

I do not know whether the Minister of State is aware that the Joint Committee on Finance and the Public Service met representatives of the banks, the Small Business Association and Irish Hotels Federation on Tuesday. The groups could not have put more diametrically opposed views. The message from the meeting was simple. On the one hand, the banks stated they continue to lend money to small businesses as they have always done while, on the other, small businesses argued that this was simply not the case. Perhaps there is a question about who one believes but few people are in doubt that they do not believe the banks.

As the Minister of State will have noted from her constituency, a chorus of protest is coming from small business. Deputies, Senators and the media are hearing small businesses squealing because they are being squeezed by the banks and not being given the type of facilities they received in the past. Businesses are not making up this for the sake of amusing themselves.

Approximately 1.1 million are employed in small businesses. The number of small businesses stood at 250,000 in January 2008 but may have declined to approximately 240,000 as a result of the credit squeeze and economic circumstances. The small business sector is more vital for the economy than the banks which are depriving business of funds. It is imperative that the Government is not a spectator in the crisis which has hit small business. Although it does not have money to lend to small businesses, the Government must not invite various organisations to the Oireachtas to bleat and act as a spectator as the banks come here and claim they are lending a large amount of money.

It is imperative that the Government's role in this matter is one of arbiter and catalyst and that it recognises the needs of small businesses and finds out immediately which side is telling the truth. Both sides cannot be telling the truth and if the Government finds out it is the banks which are not telling the truth, it is not beyond its power to expose them. Never has a Government been in a potentially more powerful position vis-à-vis the banks than it is today. It has two nominees on the board of each of the six banks participating in the guarantee scheme. These individuals are accountable to the Government for the behaviour of the banks and can, if they so wish, put irresistible pressure on the banks to behave in a manner that is in the interests of the economy. Whatever about the past, banks now have an obligation to the economy as well as to their shareholders. This is acknowledged by the banks, as a representative of the AIB did at the meeting of the joint committee on Tuesday.

It appears the banks are not lending to small businesses because they have lent so much money to developers they do not have money left to lend to small business. It is also apparent that they will not get their money back from developers whom they are not pushing hard because they are frightened they will make them bankrupt. As a result, money which could have been lent to solvent small businesses providing major employment is not available. These businesses are starved of funds and some will go under.

While I have not examined specific complaints made by small businesses, there are so many of them they must be true. Many companies complain that all they lack is working capital. These are healthy businesses which have always operated on the basis that the banks provide them with working capital to tide them over weekends, months, etc. They cannot access capital because the banks will not give them money and businesses are not paying each other.

A problem has arisen in the area of prompt payments from one business to another. An even greater problem has arisen because some of the larger chains, particularly UK companies, are not paying small businesses. Thriving businesses are starved of cash as a result because they are not being paid by their large customers. They need the banks to lend them money, even if only on a temporary basis, or they will go under. Thriving businesses, which could easily survive if the banks lent them funds on a short-term basis, will go under for no good reason. In the meantime banks are storing capital, calling in large sums from small businesses and not offering them the facilities they should be given.

I appeal to the Minister of State to give the House an assurance that profitable businesses under temporary pressure will be able to survive because the Government will force the banks to give them the funds they need to remain commercial. I make this plea on behalf of healthy businesses, rather than those which are not profitable or commercially viable. Failing this, healthy businesses will go under.

I am pleased to take this Adjournment matter on behalf of my colleague, the Minister for Finance, Deputy Brian Lenihan. I thank Senator Ross for the opportunity to discuss this important matter.

When the Government introduced the Credit Institutions (Financial Support) Scheme its objectives were to maintain the stability of the financial system in its contribution to the normal functioning of the economy and safeguard the interest of the taxpayer. The prompt and decisive action on the part of this Government has been very successful. Irish banks have continued to do business and people and businesses have been able to deposit with financial institutions with confidence.

The Government recently decided on an approach to the recapitalisation of banks. The objective is to ensure the long-term sustainability of the banking sector. Increased capital will provide a buffer against losses if they occur and will underpin its contribution through the availability of credit to individuals and businesses in the real economy. While there is likely to be some tightening of credit standards on the part of banks owing to the uncertain international and domestic outlook, the Government's actions should help to encourage the flow of funds to the economy and limit the impact of financial market difficulties on businesses and individuals. The availability of finance is a critical element of Ireland's overall competitiveness and a key part of our national economic infrastructure.

The Minister for Finance and the Tánaiste have been in regular contact with banks regarding the flow of lending to small business. Institutions covered by the guarantee have been asked to consider the contribution they could make to the economy through credit initiatives for SMEs. Following that, several institutions recently announced significant financial lending packages to assist SMEs. In addition, the European Investment Bank is in discussions with four Irish banks about its recently announced €30 billion loan facility to provide loans to SMEs through commercial banks. These important developments are to be welcomed.

The Government is aware of the importance of the SME sector, which employs approximately 800,000 people, to our economic prosperity. Our indigenous sector will be critical if we are to return to the levels of prosperity achieved in recent years. We will need to foster the emergence of significant numbers of new indigenous businesses that are export driven and sustainable. We will only be able to foster the emergence of such enterprises if the operating environment for business, particularly small businesses, is supportive. This has been, and will continue to be, a key focus of Government policy.

The Government will also use whatever other instruments are available to support business. Access to finance has traditionally been a difficulty for SMEs at start up and development phases. All financing options for viable businesses need to be explored and exploited in the future. Grant, seed capital and business expansion schemes and venture capital arrangements all contribute positively to SMEs financial requirements. The Government's €175 million investment in venture capital funds, promoted through Enterprise Ireland, has resulted in seven new venture funds which have raised over €500 million and is available for investment in the Irish SME sector.

The enterprise development agencies are focused on helping Irish businesses through the current economic difficulties to develop and grow their exports by continuing to prioritise investment in science, technology and innovation and providing financial and non-financial supports to small businesses.

The Government has put in place policies and programmes that encourage the emergence of new business creations and facilitate long-term business survival, including the positioning of our tax system as one of the most supportive of business in the world, the development of Ireland as a knowledge-based economy through the dedication of significant Exchequer resources to the promotion of research and development, the introduction of the better regulation programme to tackle regulatory burdens, particularly those faced by the business community and acting on the report of the small business forum which provided a blueprint for the further development of the sector.

Some of the report's recommendations implemented to date include increases in the VAT cash accounting and VAT registration turnover thresholds introduced to simplify administration and reduce working capital requirements on small businesses. Small companies are now permitted to calculate their preliminary tax payments based on 100% of the prior period tax liability if their tax liability for the prior period did not exceed a threshold of €200,000. New companies which do not expect their tax liability for the first year to exceed €200,000 are no longer obliged to pay preliminary tax in that first year. The most recent Finance Bill introduced tax relief measures for start-up businesses by way of remission in corporation tax and capital gains tax in the first three years for new and start-up businesses. These measures will help to grow small business and promote an entrepreneurial culture.

The extended international credit crunch which Ireland and virtually the whole world are experiencing should remind us of the pivotal role the financial system plays in the economy and conduct of business. We must find a path through these difficult times and I am confident that all in the House today want to assist in this task.

I ask the following question in view of the fact that the Minister of State has said nothing and I will give evidence for that. Phrases such as "The Tánaiste has been in regular contact", "Institutions have been asked to consider", "They are in discussions", "The Government is well aware" and "focus", which appears twice, mean nothing. The Minister of State says the Government will explore, exploit and encourage, but what is it going to do?

This reply indicates that no one in government is aware of the fact that a crisis is taking place. It is asking people to consider and focus, but what is it going to do? Small businesses will go bust next week, during Christmas week. What will the Government do to push banks to ensure money is released to viable small businesses? It should not simply ask them to consider doing something. The Government has powers to force such things to happen. Will the Minister of State tell us what the Government will do, not what it thinks?

The Minister of State is accompanied by a senior official from the Department of Finance and I am certain the valid points raised by Senator Ross will be conveyed to the relevant Minister.

It is a question.

There may be a reply to the points raised by the Senator.

I reject outright the assertion that I have spent the past six minutes reporting nothing to Senator Ross or into the Official Report. The Senator has received an updated position on the current economic situation. The Department and the Government have provided support to the banks. After that, the lending of funds to commercial enterprises and small businesses is a matter for the banks concerned.

I am aware of at least one bank which indicated clearly to me recently that it was open for business and for small and medium enterprises. Ulster Bank made it clear it has changed its policy. I cannot speak for other banks. The Government has made every effort but it cannot decide who receives a loan and who does not.

The Seanad adjourned at 2.20 p.m. until 10 a.m. on Friday, 19 December 2008.
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