Debtors can deal with lenders 'as one' in new deal

21 November 2013 01:01

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Debtors can deal with lenders 'as one' in new deal

The "protocol on multi-banked SME debt" was announced yesterday at the annual conference of the Irish Banking Federation (IBF) in Dublin.

IBF President John Reynolds, the outgoing chief executive of KBC Bank, said the objective is to allow managers and owners of small and medium enterprises (SMEs) that are in financial difficulties to communicate with their banks on a collective basis.

At the same event he complained that a decision to hike the tax for savers who have money on deposit at the banks, but not for Post Office savers, could breach EU competition rules.

The new scheme to tackle SME lending is due to come into effect on January 2, with all IBF members understood to be signed up to the protocol.

That group includes all the main banks such as Bank of Ireland, AIB and Ulster Bank and also business focused banks such as Investec and Barclays Bank.

The plan is for a borrower to be able to deal with their lenders as a group, once the protocol takes effect, instead of negotiating separately with different lenders. SME debt is a major issue – earlier this year the Central Bank said around half of the €50bn that has been lent to SMEs is in arrears.

Teasing out an overall debt restructuring in such cases can be difficult because of the competing claims of lenders with each other and with the need to retain cash flow in the business.

While the banks have now agreed to collectively discuss and consider borrower circumstances, the protocol stops short of binding lenders to act collectively.

Under the plan, each bank will still make its own decision on whether to forgive, restructure or enforce on an individual loan.

The IBF scheme encompasses debt advanced to a business for business use, loans advanced indirectly to finance assets – including to buy premises, and debt that depends primarily on the business to be repaid.

Senior bank executives have identified the lack of progress in tackling unsustainable boom era business loans as one reason why demand for credit from industry remains muted.

In some cases borrowers that would benefit from access to capital are effectively locked out of the debt market because of the overhang of property loans.

In other cases business managers that escaped the boom without large debts have become credit adverse, preferring to use up cash than tap credit for investment.

Meanwhile, John Reynolds said the industry is disappointed by a €150m a year bank levy introduced in Budget 2014, and a hike in the tax on savings.

The decision to raise DIRT tax for savers to 41pc could represent a "serious undermining of banks' efforts to rebuild their retail deposit base," he said.

That is ironic he noted, because banks have been criticsed for their unwise and excessive use of wholesale markets during the boom.


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