Regional businesses are at risk of “going to the wall” before Christmas, due to their inability to access credit so the banks must “urgently provide cash flow” to protect the city’s businesses and economy.
This is the view of Fine Gael Sen Fidelma Healy Eames who said “serious concerns exist” about the number of businesses that are at risk of folding before the end of the year.
“The question I am hearing in the region is, how many of our businesses will make it to Christmas?” she told Seanad Éireann this week. “This is absolutely shocking. These are perfectly fine businesses that need cash flow to survive. Real people's livelihoods are at stake here.
She said the problem lies with the banks cutting back on lending and the Government’s reluctance to free up credit for Irish businesses.
“The banks are not supporting business when they most need it, although they themselves were bailed out by a Government guarantee scheme,” she said. “Also why are banks cutting back on lending?
“If banks are cutting back so forcefully because they are short of capital for lending, why is the Government so reluctant to recapitalise them and free up credit for the sound Irish businesses that are now seriously at risk of being suffocated out of existence?”
Sen Healy Eames said now that rates are due and taxes have been paid, rents are still high and turnover is down.
“In some cases customers are seeking longer payment periods while suppliers are curtailing the amount of credit they are willing to provide for business, forcing businesses to cope with hardship from all sides,” she said.
“Banking institutions claim such capitalisation is not required but this is nothing more than a sinister case of management protecting their own interests.”
Sen Healy Eames said international best practice suggests the banks should be recapitalised, senior management fired, the boards cleared, and a new start initiated.
“The Government’s ‘wait-and-see’ approach to the banking crisis is destined to prolong and deepen the damage inflicted on the economy,” said Sen Healy Eames. “Time is running out for local business. The behaviour of the Government and the banks is threatening people’s livelihoods, homes, and their ability to make ends meet.”
NCB analysts last evening said they expect consolidation to occur in the banking sector before any recapitalisation takes place.
"The aim of this consolidation will be to create an industry that is stronger and better able to withstand the buffeting the banks will take over the next few years," they said in a note to investors.
The recapitalisation debate shifted up a gear last night with Brian Cowen saying that the government is at an "advanced stage" in looking at options to ensure that small Irish businesses have access to credit.
The government is looking at "all options" and Mr Cowen has indicated that "the idea that bank recapitalisation is the solution to the problem is not the full picture."
However, reports this morning that the Government is in talks with a number of international private investors about injecting fresh capital into the Irish banks.
According to the report several private equity firms, including JC Flowers, have been in contact with the government about the possibility of talking a stake in an Irish bank.
The government is coming under increasing pressure to partake in a recapitalisation of the Irish banks as credit rating agencies put the banks debt on negative watch.
Both Allied Irish Banks and Bank of Ireland have had their credit ratings placed on review for possible downgrade by Moodys which believes "the rapid and faster than initially anticipated deterioration in the economic environment in Ireland and in the U.K. will mean that asset quality will deteriorate".
