Banks finally begin to offer SMEs real chance to tackle debts up to €10m
Ireland's SMEs -- which are shouldering about €25bn in distressed business loans -- should find it easier to deal with multiple lenders under a new protocol that's just been unveiled.
The Irish Banking Federation (IBF) has initiated a process where banks can collectively negotiate with small- and medium-sized firms in financial difficulty.
The aim is to make it easier for financially distressed SMEs with loans from more than one borrower to tackle their debt issues.
But Mark Fielding, the head of SME representative group ISME, has claimed the new protocol amounts to little more than a means of facilitating dialogue between lenders and the SME, rather than any ground-breaking initiative.
While they form the backbone of Ireland's economy, many SMEs are labouring under high debt levels, much of it amassed during the boom. A big chunk of the borrowings was used by SME owners to invest in property. About 70pc of the people in employment here work for an SME.
Last year, the Central Bank revealed that half the €50bn on loan to Ireland's SMEs was in trouble.
And while some SME owners used the money to invest in property as a nest-egg for retirement, others expanded their businesses. Some of the borrowers also offered banks personal guarantees that included the family home.
Mr Fielding said about one-third of SMEs had borrowings from more than one lender.
The IBF said the new protocol had been signed up to by AIB, Bank of Ireland, Ulster Bank, ACCBank, Danske Bank, KBC, and Permanent TSB.
At the request of an SME, or of a lender with the SME's approval, a liaison group will be established that will engage with all the SME's debtor banks on a collective basis. According to the IBF, that will facilitate a group consideration of an individual SME's financial predicament.
IBF president David Duffy said the organisation and its member banks "fully recognise" the importance of working with SMEs to manage their legacy debt "in the hope of returning as many of them as possible to full viability again".
Under the protocol:
* SMEs with debts of between €250,000 and €10m can participate in the process.
* To avail of it, SMEs have to be acting in good faith.
* They are considered to be in financial distress if they have a credit facility in arrears for more than three consecutive months or an overdraft that has exceeded its limit for more 90 consecutive days.
* Any bank that's part of the liaison group can still pull the plug on their client without notice.
In each case, the protocol process will terminate after 40 working days. The liaison group in each case will propose an action plan, but won't be a decision-making process. It will also not compromise any existing arrangement.
The IBF has warned that even if a bank has joined the liaison group to deal with an SME client, it can still decide to call in its loans or take other action permissible under its contract.
"Participating banks can without notice act unilaterally in line with existing contractual agreements," according to the protocol.
"Where this proves necessary, the bank taking such action should notify other participating banks as a matter of courtesy."
Meanwhile, an unpublished report by cross-border body Intertrade Ireland, seen by the Irish Independent, concludes that efforts to tackle debt levels among SMEs need to be fast-tracked, with fundamental bank debt restructuring and debt write-offs required.
The study shows that while the Central Bank is engaging with the main banks on the issue, action has been too limited. The report said that until debt levels among SMEs were made more sustainable, they would be unable to secure additional finance.