Banks 'pull plug' while negotiating SME debts
BANKS are closing down small businesses right in the middle of negotiations over their debts, according to complaints the Department of Finance says it has received.
A senior official in the department's banking unit, Brian Fee, has written to Financial Regulator Matthew Elderfield seeking changes, to make sure such practices are stamped out.
In his letter, Mr Fee says the department has received "a limited number of complaints'' from borrowers who claim banks have acted too swiftly.
The firms have often been "in the process'' of restructuring their finances when the bank moved, claimed Mr Fee's letter.
"Sanctions on the banks after the event are of no assistance to a borrower who may be forced out of business in the meantime,'' states the letter.
Mr Fee called on Mr Elderfield to add curbs on such practices to a new code on lending to SMEs.
The question of how long banks should give indebted businesses to reverse their fortunes has been contentious since the financial crisis began.
Mr Fee's letter makes it clear that defining what a business in difficulty actually means remains vitally important.
Meanwhile, Credit Review Office (CRO) chief John Trethowan said yesterday he had no role over when SMEs went into liquidation or receivership. His office could do little for firms that had already gone out of business.
"Anecdotally, I have only heard of one case when the bank allegedly moved to close the SME while still negotiating with it but that does not come under the remit of the CRO. My office is responsible for reviewing credit applications only, so we don't have the scope to deal with something like that."