FINANCE
ACCOUNTABLE FOR
THE HEAD OF THE CREDIT REVIEWOFFICE, JOHN TRETHOWAN, DETAILS TO SORCHA CORCORAN HOWHEWILL ADDRESS THE LENDING CRISIS VIABLE SMES CURRENTLY FACE AS THEY APPLY TO THE BANKS FOR CREDIT
credit
Commenting on his first quarterly report released this month, head of the Credit Review Office (CRO) John Trethowan emphasises that he is taking a balanced approach, viewing banks as being “on the same side of the battlefield” as everyone else. Set up on 1April, theCROmodel is designed to determinewhether declined bor-
rowers can demonstrate that their business or farm is viable as a going concern and has cash-generation capability to service the requested debts. Aswell as heading up theCRO,Trethowan is chargedwith ensuring thatAIBand
Bank of Ireland achieve the objectives set for themeach tomake €3bn in new lend- ing each year available to viable SMEs in 2010 and 2011.On amonthly basis,hewill be monitoring their progress in the implementation of these lending targets and will include a commentary on each bank’s geographic and sectoral performance. Having been given free rein to access Bank of Ireland’s andAIB’s confidential and
John Trethowan
commercially sensitive policy and guidance documents,Trethowan wants to assure people firstly that there is no policy constraining the supply of credit to viable busi- nesses in either of the banks. However, there is evidence of a lack of experience among some front-line staff in
the banks in dealing with SMEs and helping themwith the loan process. “The banks are ‘talking the talk’ from a policy perspective, but they need to be
demonstrating they are ‘walking thewalk’at the front end.They could improve on the communications side, showingmore empathy to customers in difficult circumstances. It’s important to keep talking with customers, even if it’s bad news.” In his report,Trethowan notes that after two years of difficult recession,many
SMEs and farm businesses have had their net worth, ie the businesses’ capital, reduced or completely eroded. “There are not just problems on the supply side,but also on the demand side with
SMEs,when we think that 80pc of loan applications are being addressed. “If we are to accept Mazars’ findings, one fifth of applications that have gone
through the application process have been declined, and a proportion of these have been reviewed bymore senior staff at the bank and also declined.So this is their third time to seek credit – after two years of economic hell,where sales have gone to pot and capital and reserves have been eroded. In such cases, thismeans the bank is basically taking the risk in the hope that sales will recover and eventually capital can recover, which is a difficult position.” There has been much criticism of banks reducing or withdrawing longstanding
overdraft facilities fromSMEs,whichTrethowan wants to address. “Banks always restructured hardcore debt; it is normal practice. If the business has
submitted a credible cash-flowforecast allowing adequate residual overdraft facilities to be provided, then the debt restructured over a reasonable termshould be viewed as a positive remedy, to allow net worth to be rebuilt in the business as it pays down the termlending.”
24 OWNER MANAGER VOL 3 ISSUE 3 2010
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