Monday 2nd March 2009

Lack of Bank Credit puts 60,000 Employee Sector at Risk
IHF Highlights Continuing Shortage of Funding

The Irish Hotels Federation (IHF) today called on Irish banks to deliver on their obligations under the Government recapitalisation scheme and immediately increase the flow of lending to small and medium enterprises. Speaking at the IHF’s 71st Annual Conference in Killarney, President of the Federation, Matthew Ryan, highlighted the lack of funding and stated that action taken by the Government has so far failed to deliver for the hotel sector any significant increase in credit facilities.

Figures just issued by the Central Bank reveal that the total Bank debt to the hotel and restaurant sector at the end of 2008 was 2.9% less than at the end of 2007. This figure confirms the feedback from IHF members throughout the country who are experiencing the potentially disastrous situation of additional working capital not being available. Extra working capital is essential over the next six months as most enterprises having experienced a substantial downturn in trading during 2008 had depleted cash reserves going into the winter–spring period.

“Feedback from the vast majority of our members suggests that Government efforts in the lead up to and following the recapitalisation plan have had little impact on the availability of funds within the sector,” says Mr Ryan. The change in economic circumstances and the absence of the likelihood of a return to growth in 2009 or 2010, makes it imperative for hotels and guesthouses to concentrate on survival.  Managing cash flow over the next two years, with the objective of them being well positioned when the economic cycle returns to growth is critical.

 “Our sector is not alone in this regard. Other sectors are experiencing the same constricted pipeline of finance. It is unacceptable that the banking sector, which has been shored up by the Government and tax payers, is not providing additional assistances to businesses which are essential to the economy but are at present struggling to survive.”

The IHF maintains that the banks currently treat hotels and guesthouses as a high risk sector and that this may be contributing to the reluctance to provide adequate working capital facilities. From a national economic viewpoint, this is extremely short sighted and detrimental to Ireland’s long term tourism prosperity. “We believe that lending assessments and criteria must be changed fundamentally to reflect the current realities. Adequate working capital must be available to businesses continue trading,” says Mr Ryan. “Our concern is that the difficult short term credit situation will cause the unnecessary demise or contraction of otherwise viable hotel operations and constrain the eventual economic recovery.”

At a time when the general economic situation necessitates increased levels of banking support and credit availability to deal with the large and sudden decline in business the hotel sector finds that the availability of credit is tight and, when available, it is often with additional costs and conditions.

 “Notwithstanding that the Irish banks having recently announced increased funding for the small and medium business sector, there is no evidence of increased working capital being made available to hotels. The situation is too urgent and difficult to discover, in some months time that the measures have not improved the hotel financing situation. There must be immediate accountability, monitoring and transparency in credit availability,” continues Mr Ryan.

The IHF proposes:

• The urgency of the situation be recognised
• The immediate establishment of an SME Credit Monitoring Committee including the financial regulator, central bank (1) relevant government departments(2), business sectors(3) and an independent chair (university sector) to provide monthly assessments of the availability of credit within two weeks of each month end.
• Easing of tax payment requirements including commercial rates and revenue commissioner taxes to facilitate cash flow of enterprises and risk improvement for the lending agencies
• Risk sharing by Government and the banks for increased lending to hotels and guest-houses (loan guarantee scheme for fund required additional to 2008 levels  for working capital requirements)
• Supportive approach by banks to serious cases of loan difficulty
• In the absence of adequate lending by banks within the next four weeks, the establishment of direct lending or direct funding of lending by the Government (this could be similar to past approaches such as those operated through the former state owned Industrial Credit Company).       

Without such decisive positive action a financial nightmare lies ahead for a major sector in the Irish economy which employs 60,000 people.

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