New banking protocol needed for small businesses in financial difficulties

Business lobby groups team up to highlight flaws in the existing Code of Conduct for Business Lending to Small and Medium Enterprises

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The current basis for negotiations between banks and small businesses in dealing with credit difficulties is not working, a coalition of business representative groups has said.

RGDATA, the Irish Farmers’ Association (IFA), the Vintners Federation of Ireland (VFI), Irish Property Owners Association (IPOA) issued a joint statement at a briefing in Dublin this morning. Their message for government was that it has "become clear…that the action of some of the banks is actively damaging the recovery for some businesses".

According to the group, acceptable compromise and viable solutions are not being reached. In some instances, banks are imposing unreasonable conditions on customers seeking to refinance, which are just not achievable. This results in high levels of stress and anxiety for the business owner and their family. The group believes the breakdown of negotiations and appointment of receivers is an unacceptable outcome.

In a press statement, it said that the government and Central Bank must ensure banks operate "with the primary objective of retaining the viability of the core business and keeping people in employment".

Lenders must adhere to the existing Code of Conduct for Business Lending to Small and Medium Enterprises; however the group believes the code does not provide sufficient protection to a customer under pressure facing unreasonable demands from their bank. The problem is understood to be particularly acute with the banks exiting the Irish market place, who are taking a very aggressive approach to seeking judgments and appointing receivers.

To address this, the group has outlined a protocol for the banks which, if implemented, will result in greater levels of cooperation.

The key demands are:

• Banks must seek resolutions that preserve the viability of the underlying business and maintain employment;
• For all negotiations, a clearly identified point of contact in the bank must be agreed, who has responsibility for delivering a sustainable solution acceptable to both parties;
• A dispute resolution/mediation service must be employed where banks and borrowers cannot reach agreement;
• Agreements reached must be full and final.

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