Prolonged banking crisis pushes viable businesses to brink

THE prolonged instability in Irish banking is pushing many viable businesses to the brink and the Government needs to act in next week’s budget to prevent unnecessary business closures.

Actions by the banks are causing enormous psychological and business pressure across the whole spectrum of business, accountants Moore Stephens Nathans have informed Finance Minister Brian Lenihan in their pre-budget submission. Their claims are based on experience with their broad spread of clients.

They have suggested the minister should use the budget to tackle these serious issues that threaten to close countless businesses if left unchecked.

Withdrawal of overdrafts and the summary ending of undrawn facilities are two areas of hardship becoming big issues for firms, as the banking crisis drags on longer than anticipated.

Longstanding bank customers representing commercially viable business projects are feeling the pressure at this point, the submission said.

Banks have also raised lending margins piling further pain on businesses already struggling.

The establishment of NAMA presents the minister with a golden opportunity to help alleviate some of those pressures, said Moore Stephens Nathans.

Banks have been encouraging businesses to sell off assets in order to meet their bank debt, leaving the businesses still heavily borrowed but without the previous asset backing on their loans.

As a result some firms are “technically insolvent or bankrupt depending on their status”.

It argues the minister should use the NAMA system to allow the transfer of bad business debts by the banks to ease the pressure on business.

The submission said that “two clear needs” have to be met in the budget. The minister should use the opportunity to set interest rates at their current low levels for an indefinite period.

Such action would ease one of the biggest concerns business have at present that any hike in rates would “finally wipe them out”.

The Government must act on behalf of customers who do not have the bargaining power with the banks in that regard, they said.

The banks could easily identify the amount of debt that ordinary businesses are struggling with and allow it to be serviced on an interest-only basis, easing the burden further on firms.

Moore Stephens Nathans said the portion of business debt under pressure, if taken on by NAMA, would ease the pressure on the banking system while giving enormous comfort to the business sector.

The mechanisms are there to allow these temporary measure be put in place, the accountancy group said.

In the case of the debt NAMA would need to set up an independent board to adjudicate on which debt could be written down, subject to a maximum write-off, based on the accounts held in the various banks.