Main banks agree business debt protocol

The main banks have agreed a protocol to deal with legacy small and medium enterprise (SME) debt that they are planning to implement from January 2nd.

Agreed under the auspices of the Irish Banking Federation, the protocol will deal with SMEs who are multi-banked – have loans with a number of lenders – and in arrears with their debts.

Details of the protocol emerged at the IBF's annual conference yesterday. IBF president John Reynolds said Irish banks were "committed" to tackling legacy SME debt to help these companies become viable again.

The protocol would allow them to communicate with their lenders on a “collective basis” to try and resolve their debt issues, Mr Reynolds said. “We look forward to it having a beneficial impact on the bank/SME relationship.”

Debt
Statistics from the Central Bank show that the outstanding debt to Irish resident SMEs was €69.4 billion at the end of June 2013. This included debt of €30.6 billion in property-related activities.

It is not clear how much of SME debt is multi-banked. In April of this year, the director of credit institution supervision at the Central Bank, Fiona Muldoon, said that roughly half of SME lending was impaired.

It is understood that all of the main banks here – Bank of Ireland, AIB, Ulster Bank, Permanent TSB, KBC, Danske and ACC – have agreed in principle to participate in the scheme.

Debts associated with the now departed Bank of Scotland (Ireland) could also feature in the protocol via Certus, a service provider charged with working through BoSI’s legacy business here.

The protocol follows a recognition by the banks that the current basis of bilateral discussions between SMEs and their lenders can be cumbersome for those in financial difficulty with multi-banked debt.

Framework
The objective of the protocol is to create a framework to allow an SME in financial difficulty, and with multi-banked debt, to communicate with lenders on a collective basis and to allow the financial institutions to discuss the case between them. In such a situation, the banks would set up a liaison group to discuss a particular case.

The group would work to support the viability of the customer; facilitate the SME, or its advisers, in submitting a proposal for collective consideration; and facilitate each bank in having full and similar information for decision-making purposes.

It would also enable each bank to communicate its position in relation to its part of the connection, and provide a framework to allow lenders to collectively consider options to sustain the viability of the business.

A number of details have yet to be worked out before the launch next year but it is understood that no bank would have a veto in this process, although individual banks could retain the right to pull out of the discussions altogether.

Some form of majority voting is likely to apply based on a weighting of the debt held by lenders for a collective deal to be approved.