Churches say jobs and businesses at risk because of behaviour of banks

17 Jun 2010

17 June 2010

Churches say jobs and businesses at risk because of behaviour of banks

Leaders of the four main churches in Northern Ireland have come together to call on local banks to adopt a more understanding and positive approach when dealing with businesses. The Churches have written to the banks asking for a meeting, and will also meet with senior politicians in order to highlight policies and behaviour which, the Church leaders say, are ‘holding back recovery, and putting businesses and their employees at risk’.

The initiative is supported by business representative organisations Northern Ireland Manufacturing, the Quarry Products Association and the Trade Union ‘Unite’.

The initiative has been spearheaded by Church of Ireland of Ireland Archbishop of Armagh the Most Reverend Alan Harper, supported by Cardinal Seán Brady, Catholic Archbishop of Armagh, President of the Methodist Church, the Reverend Paul Kingston and the Moderator of the Presbyterian Church, Dr Norman Hamilton.

The Church leaders say that they are not in any way advocating a return to the high risk lending practices which led to the economic downturn. However, they have come together to highlight the impact of bank policies on people working in business. They are seeking meetings with the banks to press for a balance between measures to restore strength to the banking sector and to ensure the survival of businesses essential to the development of the local economy.

The initiative comes after a number of prominent businesses across Northern Ireland approached the Church of Ireland Archbishop of Armagh, The Most Reverend Alan Harper for his help. Speaking at the launch of the initiative, Archbishop Harper said that the group would be seeking meetings with the banks and local political leaders:

“I and my colleagues have been collecting examples of the way in which the banks have failed, in our opinion, to live up to their obligations or to operate according to the norms of best practice. These are matters which we hope to discuss with Ministers of the Northern Ireland Executive, the banks themselves and representatives of the Treasury. While no-one is advocating a return to the irresponsible lending practises which precipitated the world wide downturn, there must also be a way of supporting businesses more positively. We appreciate that the banks have a duty to restore strength to themselves and their sector overall. However, some of the experiences of businesses which have approached me are quite shocking, leading to instances of decent businesses, and decent business people being placed under immense pressure with the ultimate danger of closure and job losses which affect the whole community. I am concerned for people in business, for their employees and for the long term economic growth of our economy and I believe that it is time for a more positive approach from the banks.  It is becoming clear that there is a tangible risk to the economy through banks seeking too rapid a restoration of their own balance sheets. That risk translates into a threat to jobs and family income for the rest of us inflicting additional misery on businesses and their employees.”

The group is concerned about a number of issues:

•    Significant inflation in facility renewal charges, transaction charges or interest rates from previous levels.
•    Immediate withdrawal of existing overdraft and project loan facilities.
•    Prolonged deliberation for facility renewal or project approval, at worst the “slow no” scenario.
•    Insistence upon costly third party reports to facilitate appraisal.  
•    Inaccessibility to decision makers with deferral to line managers without adequate authority.
•    Micro management of the client business affairs.
•    Business sectoral discrimination e.g. construction.
•    Pressure to renew loans from previous lower rate deals into higher rate ones.   
•     A culture of aggression and threat, where the only priorities are the banks’ priorities.

Cardinal Sean Brady said that both church and business leaders understood that the banks cannot lend money to businesses or individuals in the speculative manner of a few years ago. However, he added that the current situation where solid businesses are being denied the capital required to remain competitive is unsustainable:

“We are deeply concerned at the level of stress which businessmen and women across Northern Ireland are being placed under, both through the impact of the economic downturn and, it must be said, by the behaviour of many banks towards them. Many of those who have come to us for support have been placed under needless financial pressure when they are running solid businesses which have provided much needed employment across Northern Ireland. Many of our Banks are businesses that have received support from the tax-payer to get them through these turbulent times. I think most tax-payers want to see the banks taking a similar approach to the businesses and indeed the homeowners who depend on them. Banks have a duty to society, to the social economy of persons as well as for the legitimate pursuit of their own profitability. We will be seeking to meet with and challenge the banks to change many of what we see as unreasonable practices and to join in developing a new, more humane, social and collaborative approach to the economic growth we all want to see.’

The recently installed President of the Methodist Church, the Reverend Paul Kingston said that fairness should be the baseline for how banks need to deal with business,

“We recognise that the banks themselves are facing some complex issues at the behest of the regulator. We also realise that different banks have somewhat differing approaches. But, as we have listened to those who are seeking, through business, to make a positive contribution to the economy and to the community, we have learned that very often the essential relationship between local business and local bank branch manager seems to have broken down. Unless this sense of local partnership is restored we will all suffer.  We are not asking for a return to the irresponsible lending practices of the past, but for a fair and just deal for viable businesses which are vital to our economic growth and the wellbeing of our community.”

Dr Norman Hamilton, Moderator of the Presbyterian Church in Ireland says that its time for Banks to make decisions which have a positive impact on the lives of local people,

“At a time when Northern Ireland, through the efforts of its own politicians, local business people and entrepreneurs is trying to strengthen and build the economy, it is ironic that many of the financial decisions needed to support it are being taken by people from elsewhere. We want to encourage more local decision making in a banking sector which properly supports the needs of local people running and working in small and medium size businesses both in the tough times as well as the better times.  Whilst the issues are complex in the current climate, the banks, like every other sector, must seek the welfare of the whole community and must see themselves as the stewards of the savings and investments of ordinary people whose jobs are often dependent on the small and medium enterprise sector.”

The business representative organisation, Northern Ireland Manufacturing has played a leading role in bringing the campaign together. Chief Executive Bryan Gray said that his members are reporting very serious difficulties in ‘normal’ dealings with their banks.

“Everyone understands that the days of banks throwing money at businesses are in the past. But there must be a balance between risky lending practises and the new atmosphere where businesses are constantly battling to have a reasonable approach from their banks. The fact is banks currently are driving a highly aggressive pace to rebuild capital strength. Average banking profit over the past three years has been strong, it has been the exceptional costs of bad debt write offs that has given rise to reported losses. The fact is most banks have now moved back to reporting profit, and with the level of charge and margin uplift, aligned with the underlying low cost of capital from investors, there is ever stronger profit potential for banks going forward.“

He concluded

“The pace of restoration of banking capital value is the primary focus of this initiative. The contention of many in the business community, particularly manufacturing and construction in Northern Ireland is this pace is ruthlessly aggressive and will prove fatal to many sound businesses which may fail if policy cannot be changed through agreement between the banking policy setters, the regulators and Government. Northern Ireland Manufacturing commends the Churches for this initiative and will supporting their efforts to take this initiative forward”.

Gordon Best, Regional Director of the Quarry Products Association NI, stated

“While we understand the difficult position that the current economic difficulties has placed everyone in, including the Banks, it is totally unacceptable how some financial institutions which have been saved by public money are now treating long standing, sound businesses. In Northern Ireland we are now faced with a situation of a public sector that is being sliced and much of the private sector being strangled by unethical banking practices. We need central Government to act and to act now. We would ask that all those in a position of influence listen to the Church Leaders and heed their warnings and advice”.

Jimmy Kelly, Regional Secretary of the trade union Unite said that the issue of the economy and the role of the Banks transcend the usual boundaries between management, business and staff.

“Unite warmly welcomes this initiative by the churches and business organisations and gives it our complete support. The role of the banks in providing capital to businesses across Northern Ireland is absolutely essential, and it is clear from talking to people in local businesses that there is a severe disparity between what the banks say they are doing in public, and the experience of dealing with them in private. It is time that the banks were straight with their customers and began to offer the level of support required to lift our economy and provide jobs and stability for the future.”


Note to editors

In his first major Ministerial speech at the Cass Business School in London earlier this month, Vince Cable has outlined how the Government will support business:

Perhaps most important for early economic recovery, I will redouble our efforts to ensure that bank lending agreements from banks that have benefited from taxpayer subsidy are being honoured – especially for SMEs. We do not expect to see viable businesses deprived of credit or working capital by banks that are largely owned by the taxpayer, or the general beneficiaries of wider public support.
The banks claim that there is no demand. That is not right. If the bar is set too high, of course no one is willing to jump. The current risk aversion by banks in the SME sector will stifle recovery and, if it does, will actually rebound on the banks through bad debt.