The Minister for Finance Brian Lenihan and the Minister for Enterprise Batt O’Keeffe announced today that the overriding objective of Government is to ensure that the economic recovery that is now underway sustains existing jobs and creates new jobs.

To achieve that objective, it is vital that credit is provided to Small and Medium Sized Enterprises which will be the key drivers of job growth.

The lending plans of Bank of Ireland and Allied Irish Bank which outline how they will achieve the target of €3 billion lending each over each of the next two years are to welcomed.

The Department of Finance and Mr Trethowan’s office will be getting monthly progress reports from the two banks which will allow us to ensure that they deliver on the strong commitments given in their plans to support viable businesses in all sectors of the economy and in every area of the country.

Below are a set of Questions and Answers to Mr Trethowan:

Bank Lending Plans

Do you have statutory powers to compel NAMA banks to lend?
Yes, I have power under Section 210 of the NAMA Act 2009 to issue guidelines, which NAMA banks have to comply with. These would be at an overall level, rather than compelling the banks to lend to a particular company.

Why not use your powers to compel NAMA banks to lend?
There needs to be a balance struck here. There are advantages and disadvantages to going that route. Firstly the numbers of businesses taking a case to John Trethowan and the Credit Review Office is still very small – if large numbers of viable businesses are being refused credit, I would expect to see far more reviews requested.
Secondly any perception that lending was dictated by social or political criteria, rather than commercial judgement could create real difficulties for the banks in raising the funding they need in order to lend on to SMEs and other customers.
The banks progress under lending plans will be monitored very closely and any indication that there are unexpected problems with a particular sector or region will be looked into. I’ll also be following closely how banks react when Mr. Trethowan finds in favour of the borrower.

Can we be sure that the banks will actually lend the money?
We know that banks are in a position to lend and their Lending Plans outline a range of things each bank will be doing to make sure that the lending actually happens. These range from customer road shows to improved training for bank lending staff.
Obviously the total lent will depend on the number of viable companies coming forward to borrow. Demand for credit has clearly been substantially down in the last year or two but signs of economic recovery are already beginning to appear and we expect credit demand to strengthen appreciably as the recovery gathers pace.

Why not compel the banks to lend/lend to particular sectors/regions?

Whether or not to lend is the central decision a bank makes. Banks cannot “outsource” responsibility for taking this decision, or for managing the consequent risk on their balance sheet – this is fundamental to proper regulation of the banks.

Any perception that lending was dictated by social or political criteria, rather than commercial judgement could create real difficulties for the banks in raising the funding they need in order to lend on to SMEs and other customers.

Will you publish reports on the Lending Plans?
Yes, the banks will provide detailed quarterly reports, as well as brief monthly updates, and we intend to publish each quarter.

Will you publish sectoral or regional breakdowns?
No. Those figures will be supplied to the Department of Finance and Mr. John Trethowan, but sectoral and regional breakdowns are commercially sensitive and will not be published.

What are banks doing for the hi-tech and export sectors?

As outlined in the Minister for Finance’s statement of 30 March, the banks are working with Enterprise Ireland and the IBF to develop their understanding of these areas and to provide better service to these vital sectors of the economy. Good progress is being made. Both banks refer to this in their Lending Plans and, in conjunction with Enterprise Ireland, we will be closely following developments here.

Credit Review guidelines

Why are there so few applications for Review?
The CRO has a website and a helpline and both have recorded substantial numbers of inquiries. We expect the numbers of reviews to grow as people become more aware of the CRO service. The low level of reviews to date may reflect a lack of awareness of the Credit Review Office but the CRO has gone to great lengths to publicise its services including press advertisements, press briefings and meetings and presentations to representative organisations. The two banks are required to make borrowers who are refused credit aware of the existence of the CRO and have been provided with leaflets on the CRO for distribution to borrowers.

How can people apply for reviews?
They should go to the website www.creditreview.ie for further information or call the helpline on 1850 211 789

Do the guidelines apply when credit is reduced or withdrawn?
Yes, the definition of a refusal of credit includes both a reduction in credit and the complete withdrawal of credit.

Do they apply to all banks?
The guidelines only apply to banks which are participating in NAMA.

Who will pay the costs of the reviewer?
The guidelines provide that the costs of the reviewer will be paid by the participating institutions and the first bills have been issued to them by the CRO.

What is the legal basis for the guidelines?
Section 210 of the NAMA Act 2009. Statutory Instrument 127 of 2010 contains the guidelines.

Why are reviews restricted to SMEs?
SMEs are crucial to the Irish economy and it is clear that smaller businesses are experiencing the greatest difficulty in accessing credit. Larger businesses do not have the same difficulties and are in a better position to challenge any refusals by the banks.

What are the minimum and maximum amounts for which an application for review can be made?
The minimum is €1,000 and the maximum is €250,000 per application. [ Note: There is no restriction on the total amount of credit an applicant can have, other than they must be classified as an SME]

Why doesn’t the bank/Credit Review Office refund the fee if the review finds in favour of the borrower?
The review is investigative and the purpose is not to apportion fault or blame but to review the refusal and make a recommendation.

The fee charged is a partial contribution to the costs and it is not considered appropriate to refund the fee, whether the finding goes with the bank or the borrower.

Why can’t the banks be forced to comply with the reviewer’s decision?
The bank is required to comply with the recommendation or explain why it will not do so.

Whether or not to lend is the central decision a bank makes. Banks cannot “outsource” responsibility for taking this decision, or for managing the consequent risk on their balance sheet.

Forcing banks to comply with CRO decisions would have serious market repercussions. Any perception that lending was dictated by social or political criteria, rather than commercial judgement could create real difficulties for the banks in raising the funding they need in order to lend on to SMEs and other customers.

What can be done if the bank refuses to lend because its policy is to avoid lending to SMEs or other sectors?

The Code of Conduct on SME Lending, issued by the Financial Regulator, requires that each credit application is considered on its merits. Blanket refusals to particular sectors or groups are not allowed.

The Credit Reviewer has reviewed the lending policies of each participating institution, and found no evidence of systematic bias against particular sectors

As the reports from the banks come we will be able to see the level of lending to different sectors of business and to different regions of the country.

ENDS