Single resolution process for SME debt

Multi-banked SME debt can be resolved through a single resolution process following a new protocol launched by seven banks.

The scheme is the latest attempt to deal with the massive level of SME debt in the system. Outgoing Central Bank executive Fiona Muldoon in a speech last year said that roughly half of the outstanding €50bn SME loans were in some sort of arrears.

The new protocol, which has been agreed through the Irish Banking Federation (IBF), will enable an SME that is in difficulty with a number of banks to enter into collective negotiations with banks participating in the scheme. There will be one channel of communication for the customer in arrears.

The banks that have so far signed up include ACCBank, AIB, Bank of Ireland, Danske Bank, KBC Bank Ireland, Permanent TSB and Ulster Bank.

These banks have pledged to work together to deal with a single SME debt. Moreover, all banks taking part in the scheme have agreed to support the viability of the SME and preserve employment levels.

For an SME to qualify for the multi-banked debt protocol, the amount owed can be no less than €250k and no greater then €10m.

However, in agreeing to become involved in the Liaison Group, the SME customer and the participating banks are not compromising in any way their existing contractual agreements.

A participating bank can without notice act unilaterally in line with existing contractual agreements. Where this proves necessary, the bank taking such action should notify other participating banks as a matter of courtesy, said the IBF.

“The IBF and our member banks fully recognise the importance of working with SMEs to manage their legacy debt in the hope of returning as many of them as possible to full viability again,” said IBF president David Duffy.

“This challenge can be further complicated where such debt is shared across a number of banks and this protocol is designed to address just that.”

“The fact that the leading SME lending banks in the market are subscribing to the protocol is further testament to the banking sector’s commitment to support our SMEs.

“We also recognise the need to make this protocol as relevant as possible to the needs of the marketplace which is why we are committed to regular reviewsof its operation, the first of which will take place no later than six monthsafter its introduction today,” he said.