Exposure of Irish banks to SME and household debt requires stringent independent evaluation
The forthcoming rigorous ECB stress tests will reveal whether or not the main banks in Ireland have adequately provided for the losses they are carrying on household and SME debt and should provide a ‘spin free’ assessment of the health of Irish banks, according to Fianna Fáil Finance Spokesperson Michael McGrath.
Deputy McGrath was speaking following the publication today by the ECB of its manual on the methodology for the forthcoming stress tests.
Deputy McGrath commented, “The Minister for Finance and the banks themselves have been at pains to point out in recent times how well capitalised the banks are and how much work they have done in facing up to impaired household and SME loans. It is to be welcomed that, for the first time, the Irish banks’ loan provisions will be assessed alongside other European banks using a common set of criteria. This will enable us to put the spin aside and get a proper handle on the health of our banking system.
“I welcome the intervention in recent days of UCD Professor Morgan Kelly and the debate that has ensued concerning SME debt. In a Dáil reply to me in January, the Minister for Finance confirmed that in June 2013 the Central Bank set quarterly targets for covered banks to move distressed SME borrowers onto longer-term solutions. However, these targets were never published; we do not know what the longer-term solutions are and there is no evidence that the performance of the banks has been independently audited.
“While the Mortgage Arrears Resolution Targets (MART) programme is far from perfect, it at least allows the performance of the banks in dealing with mortgage arrears to be held up to scrutiny. In the case of SME debt, we need published targets for the roll out of sustainable solutions; we need to clearly define what those solutions are; and the banks’ performance in dealing with SME indebtedness needs to be independently assessed. SMEs are the lifeblood of the Irish economy and a strong and vibrant SME sector is an essential ingredient in Ireland’s planned economy recovery.”
The PQ in question from Deputy McGrath to Minister Noonan is below:
Deputy Michael McGrath, 16 January 2014, asked the Minister for Finance: the steps being taken to ensure that the issue of small and medium-sized enterprise debt is being tackled; if he is satisfied with the progress being made; and if he will make a statement on the matter.
Minister for Finance (Deputy Michael Noonan): In June 2013 the Central Bank set quarterly institution-specific performance targets for covered banks to move distressed SME borrowers onto longer-term solutions. The targets set reflect the banks’ capacity, processes and systems. It is not intended that these targets will be published. I am informed by the Central Bank that the banks have reported that they have met their required targets to date.
I should stress that the Credit Review process remains available to any SMEs whose credit has been reduced or withdrawn by AIB or Bank of Ireland as well as when credit is refused by them. I would strongly advise any SME whose credit is reduced or withdrawn to avail of the services of the Credit Review Office.
The Government recognises that SMEs are the lifeblood of the economy and play a vital role in the continuing recovery of employment growth in our country. In this regard specific measures to promote access to finance amongst SMEs, including measures relating to debt restructuring, have been a central feature of the Government’s Action Plan for Jobs.