BUSINESSES in the north desperately trying to get back on their feet when lockdown restrictions ease “can expect to face a hugely different banking regulatory landscape”, an industry expert has warned.
And where issues around funding may previously been dealt with by a business's relationship manager, now it's an algorithm which could determine that company's very survival.
“The business funding landscape has changed dramatically over the last number of years, with significantly increased regulatory requirements now imposed on lending institutions,” according to Feargal McCormack, managing director of all-island accountancy practice PKF-FPM.
“And in the wake of Covid, as businesses try to open up again, where the renewal of loans was once routine, this is no longer the case, with the serious implication that, if you are not keeping your affairs in order, all of a sudden you risk being in default.”
Mr McCormack was speaking as his company establishes a new business funding solutions division (BFSD) to assist businesses in the north to achieve funding in the new evolving environment.
PKF-FPM has also secured the services of Gavin Kennedy as a strategic banking consultant in the new BFSD unit (he is a banker with 26 years' experience, including being head of business banking for Bank of Ireland in Northern Ireland).
Mr McCormack has raised the new economic reality in an exclusive article entitled “Protect, plan, prosper - business funding in a changing landscape” in today's Business Insight (see page 35).
In it, he says that whilst behavioural scoring and auto-scoring are currently mostly used at the lower end of business borrowing, the lending threshold where they apply is continually increasing, and this will have huge implications for companies emerging from many months in hibernation.
“It'll be this that will determine your future relationship, and if you make a default, it will be massively problematic.”
He added: “The end of payment holidays and winding-down of public support schemes will make it hard for many businesses, and it's no secret banks fear some businesses may not be able to pay back their Covid loans.
“But if you have one of these loans and you hit a problem, it jeopardises your banking relationship. And now that banks share their credit data, those defaults will be seen by credit reference agencies too, then it becomes public knowledge and becomes a big problem.”
Ex-banker Mr Kennedy added: “Regulatory change will impact on borrowers, yet it's not been fully explained or understood as yet, hence the creation of this new unit.
“If businesses understand what the banks are doing and what the requirements are, we can advise customers better, and if we do that, they can get their facilities renewed easier and understand the issues and know what to do and what not to do.
“There's nothing the banks can do about the regulatory requirements. They're non-negotiable. So taking this on board gives the customer base the best chance of getting funding and protecting their business.”
He added: “Around 88 per cent of businesses in Northern Ireland operate on a profit margin of less than 10 per cent.
“Very few can survive on less than 100 per cent of revenue, and even after the current restrictions are relaxed, won't get up to 100 per cent of revenue for a number of years, and that means businesses' ability to make a profit and repay loans is hampered.
“There creditworthiness is going to take a hammering, and if anyone was a funder to those businesses, they will have grave concerns as to their ongoing viability. So at what time and for how long will they wait to make a call on that?
“Will businesses close? Well, the regulatory environment is such that there are so many requirements on banks to do certain things, that for some makes their reopening and much more difficult.”
“The banks will have limited leeway. It won't now be a human being saying no, but an algorithm, and you have regulation backing it up. The bank doesn't have discretion any more.”
