Business Irish

Saturday 21 April 2018

Banks cutting 'debt deals' that include partial or total write-off

Laura Noonan

Laura Noonan

A small number of investors and businesspeople are cutting "final" settlement deals with banks which allow them to walk away from their debts.

Some banks are offering commercial customers "settlements" that usually involve an obligation to pay the debt at a future point -- but crucially some "settlements" can free borrowers of all future obligations to pay back their loans.

The news comes as Small Business Minister John Perry urges Irish banks to write off some of the money owed by businesses to ensure the survival of firms and to protect jobs.

Enterprise Minister Richard Bruton is also examining ways to aid SMEs that are crippled with property debts after boom-time investments went awry.

An investigation by the Irish Independent has revealed that several banks, including ACC, Anglo Irish Bank and Bank of Scotland (Ireland), are allowing small numbers of borrowers to "settle" debts.


In some cases, the future earnings of borrowers are "garnished" so the debt is repaid in the future or the borrowers will have to repay the cash if they come into money in the future.

But in a small number of cases settlements are final and there is no recourse even if the borrower later comes into money. This will, however, affect the borrowers' credit rating and his or her ability to borrow money again in the future.

Mr Perry, who describes himself as the "voice for small business in Government", said the banks needed to recognise how much they could realistically recover from businesses with large debts.

But the Government's credit czar John Trethowan, is urging "caution" and does not favour a blanket-type scheme that could apply to all businesses with large property loans.

The Credit Review Office head said there were many cases where businesses had sunk all of the money they made in the boom times into property and now, when they needed cash reserves, they couldn't get at it -- but he added that widescale debt forgiveness should not be an option.

Mr Trethowan said there must be "moral hazard" as any broad scheme could be abused. Banks, however, are currently doing deals with business customers that do involve changing the terms of their loans. "The banks are allowing them to have holidays from loan repayments or to just pay interest for a period to try to help them," he says.

"Restructuring is going on and settlements are being reached but they still have to hurt," he says. "If they don't they will be badly abused."

Mr Trethowan believes it should be left up to individual businesses to deal with their banks on a case-by-case basis.

"If the flood gates are opened then we could end up with another banking crisis. It depends on how much bad debt the banks have provided for."

The former banker believes it will take between five and seven years for many businesses to get out of trouble and says the banks should be prepared to work with them over that period. "I think the banks will stay with them and help them to survive."

The Credit Review Office, which looks at loan applications that have been turned down, said it would continue to see what it can do "if there is a germ of survival" for a business.

Irish Independent

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