Tuesday, 16th December 2008

Irish Hoteliers Call for Greater Availability of Credit
Irish banks and the Government have a fundamental role to play

Irish Hoteliers today called for a major change in the criteria used by financial institutions in making credit facilities available to the hotels sector in the current difficult economic environment. In a submission to the Joint Oireachtas Committee on Finance and Public Service, the Irish Hotels Federation (IHF) stated that Irish banks and the Government have a fundamental role to play in ensuring that a sound financial environment is established to avoid the unnecessary demise or contraction of otherwise viable hotel operations – a scenario that would constrain the eventual economic recovery of the country.

John Power, Chief Executive, IHF, told the Committee that, in the absence of increased banking facilities, the sudden decline in economic activity in Ireland during the second half of 2008 and the anticipated 4% further decline in 2009 are creating very serious cash flow positions for many hotel and guesthouses.

The Federation stated that the latest Central Bank sectoral credit data confirms a serious cause for concern, revealing that in the year to September 2008, credit growth in the hotel and restaurant sector was only 1.3% compared to 12.9% in the overall private sector. At the end of a difficult trading year in 2008, the level of reserves built up by hotels and guesthouses is lower than it would have been in previous years. Therefore, it is essential that additional seasonal credit facilities are made available throughout the 2008-2009 winter/spring period.

While the Federation welcomed recent announcements from a number of banks in relation to increased funding for small to medium enterprises, it stated that the institutions involved must urgently clarify that this funding is additional to existing facilities. According to the IHF, it is unclear how this funding will be allocated and on what conditions. The situation is urgent, and this loosening up of credit needs to occur immediately. It will be of little use in three months time to discover that the measures have not improved the hotel financing situation. The Federation believes that there must be immediate accountability, monitoring and transparency in credit availability and on its cost and conditions.

Mr Power states, “It is our view that the banks currently treat hotels and guesthouses as a high risk sector and that this is driving the reluctance to provide adequate short term financing at appropriate costs and conditions. It is our contention that the economic benefits from the sector are such that this approach is short sighted and inappropriate. We believe that the banks' lending and loan application skills have been honed over thirteen years of growth and that a new approach must be adapted in the current economic crisis.”

“Hitherto, loans were largely based on growth business models. That assessment culture is redundant until an economic recovery occurs. Lending assessment and criteria must reflect the current realities of temporary decline and the objective of survival.”

Mr Power called for the creation of an SME Credit Monitoring Committee to provide a monthly assessment of the availability of credit within two weeks of the end of each month. This committee should include the Financial Regulator, Central Bank, relevant Government departments and the business sector, with an independent chairperson. The rules and regulations set by the Financial Regulator concerning credit cost, conditions and lending criteria should support the enterprise sector.

The IHF called on the Government, in an approach similar to that of the UK, to ease the taxation payment requirements on enterprises, including Revenue Commissioner taxes and local authority rates to facilitate the cash flow of enterprises and risk improvement for the lending agencies.

Mr Power stated, “There should be an element of risk sharing by Government and the banks for increased lending to the hotel and guesthouse sector, possibly through the introduction of loan guarantees. There should be a supportive approach by banks to serious cases of loan difficulty and, as a last resort and in the absence of adequate lending by banks within the next two month period, the State should establish a mechanism for direct lending or direct funding of lending similar to that made available in the past through former state owned banks.”

IHF Proposals on Credit Availability:

• 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.

• Rules and regulations set by the Financial Regulator concerning credit cost, conditions and lending criteria should support the enterprise sector.

• An 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 guesthouses ( loan guarantee scheme for fund required additional to 2007 levels for working capital requirements)

• A supportive approach by banks to serious cases of loan difficulty

• In the absence of adequate lending by banks within the next two months, 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)

ENDS

FOR INFORMATION:

Siobhan Molloy / Eoin Quinn Tel: 01 6760168
Weber Shandwick Mobile: 086 817 5066 / 087 233 2191