Farm Ireland

Thursday 13 December 2018

Banks abandon small business and farmers to vulture funds

Colm Kelpie and Charlie Weston

VIABLE farms and business are being left at risk of seizure from vulture funds because the main banks no longer develop real relationships with their borrowers, the State’s credit watchdog has warned.

The call to protect business borrowers came as the Central Bank said it would challenge what it called “evil nudges” from banks – a reference to advertising and communication subtly encouraging consumers to take out products not in their best interests.

It is part of the response to the €1bn tracker mortgage scandal, which saw tens of thousands of ordinary borrowers lose out on the best deals and instead were stuck with brutally high mortgage interest bills.

Banks’ approach to small businesses and farms is now dominated by “numbers, ratios and credit bureau history,” said John Trethowan, the head of the Credit Review Office, yesterday.

The experienced banker was picked to set up the Credit Review Office after the crash to make sure rescued banks used their bailouts to keep credit flowing.

He has now warned that branch closures and desk-based decision making means “minimal reliance is placed on the borrower’s track record”.

Even viable small businesses were struggling to refinance loans away from funds that bought the debt, and were getting harder to deal with, he said.

“The feedback we have got over the last few months is that some of the funds are getting harder to deal with.

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The settlements or the discounts they’ll take aren’t as good as they would have been a year ago.”

Rising property prices can mean seizing farms and business is becoming more attractive.

“There are quite a few businesses coming to us and we will do our very best and we’ll try to make the argument to get them refinanced, but ultimately the threat is the fund has a charge over the assets, the farm or the business.”

The watchdog also said it has seen many cases, particularly farms, where the borrower has worked hard, and has invested time and their own cash in building up the business/farm.

However, when they do ask to borrow, the Credit Review Office has observed that banks are mainly focussed on the last few years profit and loss performance. Such ‘desktop views’ fail to recognise forward potential earnings from self-investment.

"We frequently find that a visit from the banks’ own farm specialist is required before the potential from the previous self-investment is recognised. However, such visits and assessment are normally only available at a higher level of funding request".

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