Speech by the Tánaiste, Second Stage Debate National Asset Management Agency (NAMA) Bill 2009

Introduction

Ceann Comhairle, I welcome the opportunity to speak on this most important legislation. Some commentators have described this Bill as perhaps the most important piece of legislation to come before this House in a generation. There is no doubt that we must get it right. Not for our own sake as legislators, but for the sake of our economy, for all the enterprises that are the engine of that economy, and for all the workers and families – indeed for the sake of every citizen - whose standard of living is so closely linked to Ireland’s economic health.

That is my focus – how this Bill contributes to economic recovery in support of enterprise. My colleague the Minister for Finance has, in his address to the House yesterday, set out in detail on behalf of the Government, the main provisions of the Bill. I do not propose to repeat what Minister Lenihan has said, but as Tánaiste and Minister for Enterprise, Trade and Employment, I would like to set out what I see as the key rationale for this Bill, and why it must be supported.

Competitiveness and the Importance of Credit to Enterprise

Sustaining and developing enterprise and jobs remains at the top of my and this Government's agenda. That is the starting point for all our efforts. Since 2000, Ireland has been losing ground in terms of international competitiveness. The recent economic contraction has brought real challenges: national income is declining rapidly and unemployment is rising sharply. However, there has been a modest improvement in cost competitiveness. Export-led growth is a key part of any sustainable longer-term strategy to maintain living standards and to secure long term prosperity. This will require a substantial further improvement in our international competitiveness. This means bringing our cost base into line with market reality. It means building our skills base, our infrastructure, our technology, and our ability to operate as a smart, open, trading economy in an increasingly complex world. And NAMA has a key role to play in this by addressing the reality that unless problem assets on the banks’ loan books are dealt with, and are seen to be dealt with, banks will be unable to attract the resources to resume sensible lending to enterprise.

The people running our SMEs need no reminding of the scale of the unprecedented challenges facing the business community. The severity of the international financial crisis and our particular exposure to it here in Ireland, is well known. International and domestic demand and investment has suffered. Over the last year, exporting businesses have also been particularly badly hit by the fall in the value of sterling against the euro. These are the toughest of times for Irish businesses.

This government has taken action on a number of fronts to address these issues:

• The Government has provided €100 million for an Enterprise Stabilisation Fund. Under the scheme, Enterprise Ireland can give up to €500,000 to viable companies with robust business models that are facing difficulties as a result of the current economic environment.
• The Government has introduced arrangements to reduce the payment period by Government Departments to business from 30 to 15 days.
• Last month I announced a €250 million Scheme to protect up to 27,400 vulnerable jobs in the productive sector of the economy. The Temporary Employment Subsidy Scheme will provide a subsidy of €9,100 per employee over fifteen months to qualifying exporting enterprises in the manufacturing and/or internationally traded services sectors.

But another issue - access to and the cost of finance - is critical for Irish businesses, particularly indigenous firms who cannot easily access credit on international financial markets. There are real concerns that the turmoil in global financial markets and the exposure of Irish banks to bad loans is affecting Irish firms in terms of their ease of access to finance and its cost. It is essential that viable businesses - particularly small and growing businesses - are not hampered by reduced access to credit.

Our businesses need credit to be available so they can invest in their people and equipment, source supplies, grow to scale, invest in marketing and promotion. They need credit to be available to them to help fund the supply of goods and services that input in to their products; and they need credit to be available to their customers so they can purchase those products.

If we want this period of contraction to be quickly succeeded by an upturn, this is the normality we must return to. I share the IMF’s view that delays in fully relieving the banks of their impaired assets will delay a return to normal functioning.

Availability of Credit to Enterprise

The issue of access to credit for small and medium enterprises has been raised repeatedly at recent meetings with business representative organisations, such as the Small Firms Association, ISME and Chambers Ireland. The messages emerging from the available data certainly add to the concern.

We have seen negative growth in private sector credit in almost all sectors. The volume of new business loans and overdrafts to non-financial corporations is down. Total lending to the SME sector has remained relatively static. Bank reports to the Financial Regulator show that while new business lending is taking place it is at a lower rate than last year. In terms of the cost of credit, the Irish average retail margins for most lines of credit has been above the Euro area average.

Action on Credit outside of NAMA

Of course, the government has taken action on this already, in advance of the establishment of NAMA.

• The banks’ Recapitalisation Package of February last contains a commitment from the recapitalised banks to increase their lending capacity to SMEs by 10% over 2008.
• SMEs are now covered by the Code of Conduct on Business Lending to SMEs. This will promote fairness and transparency in the treatment of SMEs by the banks and should facilitate access to credit for sustainable and productive business propositions.
• Allied Irish Bank, Bank of Ireland and Ulster Bank will provide funding for SMEs on foot of €300m facilities provided by the European Investment Bank to assist developing SMEs.
• The Minister for Finance and I established last May, a Credit Supply Clearing Group with bank, business (including ISME and SFA) and State representation. This Group is responsible for identifying patterns of events where the flow of credit to viable businesses appears to be blocked and for seeking to identify credit supply solutions relating to these patterns.
• We have published the Review of Bank Lending to SMEs (Mazars Report) which looked at credit availability and recommended appropriate action. Follow-up work on implementing the recommendations in the Mazars Report is currently ongoing through the work of the Credit Supply Clearing Group.
• To assist and complement the work of the Credit Supply Clearing Group, Billy Kelleher, the Minister for Trade and Commerce at my Department held eight regional meetings over a two-week period during June and July to discuss with representatives of business, banks and the State sector, their experience of gaining access to bank credit at local and regional level.

All of these initiatives will help ensure that viable Irish enterprises have available to them, the credit required to protect and grow their businesses. But we must address one other, fundamental problem.

How NAMA Will Help

As my colleague, the Minister for Finance, has stated- concern about the impact of risky loans on the banking system continues to create funding difficulties for the banks and restrict the flow of credit. Every euro lent by a bank to a customer, to an enterprise, has to be drawn from deposits or borrowed from somewhere else. The Irish banks rely heavily on financial institutions abroad for funding. The uncertainty surrounding the scale of losses on the banks’ balance sheets has made this funding more difficult and costly to attract. Added to this, uncertainty about the losses for the banks that will result from these loans leads to nervousness about adequacy of their capital. That can result in banks not providing the credit to enterprise that is necessary to support economic recovery.

The Agency proposed in this Bill, Ceann Comhairle, will lead to smaller, cleaner and better funded banks that can focus on their core, profit-generating business: lending to the productive economy at a margin appropriate for the risk involved.

NAMA will do this by buying the land and development property loans and certain associated loans from the banks at prices well under the current book value. These loans will then be managed by NAMA over time to achieve the best possible financial return for the taxpayer. Concern for taxpayers and enterprises is at the heart of my - and this government’s - approach. Enterprises must be assured that the banks will be given specific direction as to what is expected of them. The Minister for Finance made it crystal clear yesterday that the banks should be extremely grateful for the continued support and forbearance extended by the citizens and in return, the banks are expected to provide appropriately risk adjusted credit to businesses to protect and create jobs. I am, of course, aware of the markets’ reaction today to the Minister’s speech yesterday, in particular in relation to our two main banks. It is not unexpected that a period of volatility in share prices would follow a significant announcement such as yesterday’s and it will be a number of days before its full effects are visible. While the publication of half-year results at midday today by one institution will have had an impact, the initial increase in share values may be interpreted as an expression of confidence in our ability to take the decisive action necessary to deliver a restructured and cleansed banking system which can support recovery.

Conclusion

Ceann Comhairle, there is an urgency associated with this legislation. Economic recovery appears to be emerging in parts of Europe and in America. The UK, Germany, the US and others have all established schemes to deal with impaired assets, schemes designed to meet the specific problems each of these countries face. Firstly, Ireland must be able to – and be seen to be able to – devise and implement approaches to deal with problems affecting our financial and credit system. Secondly, we must devise an approach which frees our banks of higher risk loans, so we are in a position to benefit from that economic recovery emerging in the United States and in Europe. Without the functioning banking and credit systems that NAMA is to create, Irish businesses will not be able to grow and develop their products for export to these, our main trading partners.

The government has acted consistently and coherently to address the current financial difficulties and to chart our way through current difficulties in order to be ready for the upturn when it comes. Central to our success is the introduction and passage through the Houses, of the NAMA legislation currently before us today. The successful passing of the Lisbon Referendum is also critical to cement our central position within the European Union. We must consider and act on the McCarthy Report Recommendations and those of the Commission on Taxation so as that they feed into the framing of the upcoming Budget. Hard and unpopular decisions will be taken in order to bring our public finances into better order and pave the way for a return to economic stability.

Successful outcomes on these measures will demand that Government, businesses, banks, the public and all other stakeholders accept the gravity of our situation and to work together to ensure we continue on the road beyond the current crisis and on to recovery. By working together we can get through the current difficult economic environment. We have done so in the past. There is no reason why we can’t do so again. The passage of the National Asset Management Agency Bill 2009 is a key step on Ireland’s road to recovery.

ENDS/ETE 2107