PART VIII TRADE AND PROJECT FINANCING Introduction The Irish financial system has experienced a series of changes over the past decade. New legislation has been introduced to allow more competition between different types of financial services organizations. Consequently, there exists a very sophisticated banking environment, which offers many sources of financing to organizations doing business in Ireland. The banking system operates on a basis similar to that in the U.K. on account of the physical proximity of the two countries and the high volume of mutual trade. In broad terms, the sources of finance may be classified into two groups: A) Finance and financial services available directly from banks, building societies, and other financial institutions. B) Finance available through financial markets, such as the Stock Exchange. The Irish Banking System (A) The Central Bank of Ireland The role of the Central Bank of Ireland is broadly similar to that of central banks in other developed countries. Established under the Central Bank Act of 1942, the Central Bank is charged with the responsibility of managing the country's banking/monetary system and exchange rates, and controlling credit. In addition, it acts as adviser and banker to the Irish government. It supports government economic policies, but has independence in the exercise of its statutory powers. The Central Bank Act of 1989 extended its regulatory role to entities other than banks. Thus, it now has responsibility for the licensing and supervision of banks and other financial institutions, including money brokers, the Irish Futures and Options Exchange, and institutions establishing in Dublin's International Financial Services Centre (IFSC). (B) Commercial Banks In Ireland, commercial banks are classified as "associated" or "non- associated" licensed banks. Associated banks are the traditional retail banks in Ireland. They provide a full range of banking services to business and consumers and they administer the Irish check-clearing system. There are four associated banks in Ireland, AIB plc, Bank of Ireland, National Irish Banks, and Ulster Bank. They operate some 648 full-time branches throughout the State and account for about 56 percent of total licensed bank resources in the form of current and deposit accounts and about 60 percent of total licensed bank credit. Non-associated banks engage in commercial banking and consumer finance. There are about thirty non-associated banks operating in Ireland, a number of which are subsidiaries and affiliates of associated banks. They are classified into two principal categories, merchant and commercial banks (23), and industrial banks (7). Merchant banks dominate the wholesale market as they seek to attract substantial deposits in the same way as they target the larger loan market. They provide term lending (in Irish Pounds and foreign currencies), manage large investment funds, participate in the money and foreign exchange markets, and provide a wide range of corporate financial expertise on matters such as takeover bids, acquisitions, reconstructions, and the raising of new capital. There is a strong international presence in the merchant banking sector in Ireland. Industrial banks are primarily engaged in the extension of instalment credit and similar types of lending under hire-purchase agreements or by way of personal loans. Building societies are mutual organizations with ownership vested in shareholders that have deposits in investment and savings share accounts. They are the main providers of mortgage finance to personal customers in Ireland. With the Central Bank Act of 1989, Ireland's building societies have been undergoing rapid change as this Act granted them the power to extend their range of services. Today, many building societies offer general banking services, including checking accounts and Automated Transaction Machine (ATM), insurance brokering and investment advisory services. They also engage in treasury activities, unsecured lending, and more diversified mortgage lending. They also have access to new sources of funding through the wholesale money markets or issuing a range of bonds or securities. Finally, they are also permitted to amend their mutual status to become limited companies. At least one building society is moving down that road. In return for the increased access of building societies to these areas of activity, retail banks have been granted access to the personal mortgage market. Foreign Exchange Regulations On January 1, 1993, all exchange control regulations were completely abolished. Thus, there are no restrictions on the repatriation of capital and profits of American firms based in Ireland. General Financing Availability Ireland is a member of the European Economic Community and the European Monetary System. Therefore, commercial transactions and payment terms reflect common western practices. Primary import payment considerations are determined by the financial reputation of an individual customer combined with competitive considerations. There are no commercial foreign- exchange limitations or unusual regulations. Countertrade is not required, but some international firms, on rare occasions, may offer countertrade as part of a marketing and financial package, especially to sell large ticket items. The Irish Punt is a freely convertible currency that is tied to the German Mark through the European Monetary System. There are no restrictions on the repatriation of capital and profits. Ireland has no difficulty in servicing its foreign debt and has adequate foreign exchange reserves. As the Irish Punt is tied to the German Mark, there has been a devaluation of the dollar relative to the Irish Punt over the last five to six years. While the German Mark is the primary link for the Irish currency, the government also endeavors to maintain a stable exchange rate with the British Pound as the U.K. is Ireland's largest trading partner. Irish exporters become nervous when the Irish Punt approaches parity with the British Pound. Ireland faces challenges arising from the Treaty on Economic and Monetary Union signed at Maastricht in early 1992. The Government is committed to Ireland being among the initial group of countries to proceed to full EMU. With its current low levels of inflation and interest rates, and stable exchange rates, Ireland currently meets most of the criteria for proceeding to full EMU, though government borrowing and the debt-to-GDP ratio will require continuous monitoring and planning. Thus, overall, the Irish Punt is perceived to be a strong currency within the EMU at present. Relationship with U.S. Banking System Three U.S. banks have subsidiaries in Ireland; Bank of America, Chase Manhattan Bank, and Citicorp-Citibank. The two major Irish banks have subsidiaries in the United States. Allied Irish Banks owns the First National Bank of Maryland while the Bank of Ireland owns the First New Hampshire Merchants National Bank. There are numerous correspondent relationships among banks of both countries. Correspondent relationships have become more fluid in recent years as American banks increase or decrease charges to Irish banks. Other U.S. financial institutions have set up "Back Office" operations in Ireland, largely located in the International Financial Services Centre (IFSC). Export Financing and Insurance U.S. firms requiring information on export financing should contact their local U.S. Department of Commerce District Office or call 1-800-USA-TRADE. The major Irish banks operate the Eximbank's programs in Ireland. The average Irish importer arranges import financing through his/her local branch bank manager. Experienced importers respect overseas vendors' payment terms. The domestic market operates quite differently with trade customers taking cash discounts and paying up to 90 or even 180 days after delivery. Occasionally, new importers attempt to apply domestic practices to the international market place. All the normal methods of payment are available for export sales to Ireland through a well-developed banking sector. Competition, to a large degree, has required the use of liberal financing, as opposed to requiring payment on a letter of credit or cash basis. Letters of credit can be used initially for new accounts with more liberal terms granted if justified by volume and customer reliability. Knowledge of industry practice and the customer is generally the prime consideration in deciding whether to use sight drafts, time drafts, or open accounts. Usual terms of sale are payment within 30 to 90 days after delivery, varying with the commodity and the credit standing of the purchaser. Investment in Ireland Approval by the Central Bank of Ireland is required for investments by foreign companies in new projects and existing entities in Ireland. Takeovers exceeding certain size limits must be approved by the Minister for Enterprise and Employment. No restrictions are imposed on the repatriation of profits, provided initial exchange control approval is obtained from the Central Bank of Ireland. This approval is readily given on production of a certificate from the Irish entity's auditors stating that there are sufficient distributable profits or proceeds available for the transfer. Royalty agreements between resident and non-resident companies also must be approved by the Central Bank. All of the foregoing approvals, however, are routine and serve more as a monitoring function than as a method of capital control. International firms investing in Ireland may take advantage of the generous investment incentives provided by the Irish government through IDA Ireland, the state organization responsible for attracting international investment to Ireland. These incentives include an attractive 10 percent corporate tax rate for qualifying industries guaranteed through the year 2010 (2005 in the case of IFSC companies), capital investment, R & D, and training grants; rent subsidy for industries in certain regions; and assistance in site location. The range of incentives is available to manufacturing companies and providers of such international services computer software, telemarketing, and financial services.