Posted on Friday 16 October 2009 byUlster Business
A lack of available credit is said to be the main stumbling block hampering the economy's recovery from the current recession. But Clare Guinness from Bank of Ireland tells Ulster Business its business banking team is ready and willing to lend...
Despite the upheaval in the global financial sector over the last two years, the banking system remains at the heart of a successful economy. Leveraging credit is an essential element of modern commerce and will be a key factor dictating the speed and strength of recovery from the depths of recession witnessed earlier in 2009.
The much vaunted 'green shoots' of recovery are already apparent but in many cases banks are still reticent to lend to businesses.
Not so at the Bank of Ireland. "We have a significant volume of money to lend," said Clare Guinness, Director, Business Banking at the bank's Belfast office. "We're very committed to local SMEs / mid-corporate market and our goal has remained the same - to be the number one business bank in Northern Ireland."
Encouraging to hear in the current environment and a stance which suggests the talk of recovery may bear fruit.
"We're still going through a period of correction but the signals are that things are beginning to bottom out," Clare said. "For sectors such as property there has been a seismic shift in value and that's now stimulating demand. While the demand may be at a lower level in some sectors, many businesses have already adjusted their cost base to reflect this, allowing them to remain profitable
"At present there isn't the same (upward) pressure on wages and the value of many commodities has come down from the peaks of 2008. If you move swiftly enough and realign your business to the new world, there are opportunities."
Clare speaks from experience having spent 12 years at the bank in Belfast, Dublin and London and now heading up a team of ten bankers and accountants. Plans to expand the team underline this thirst to lend to businesses in Northern Ireland, as do recent deals with the likes of UPU Industries and Greiner Packaging where expansion plans were backed by the bank. Jarek Zasadzinski, CEO, Greiner Packaging comments, "Bank of Ireland continue to have an appetite to lend having recently increased funding to enable us to enhance production."
In these cases, the need to expand highlights the fact some companies are already posting solid performances despite the recession.
"Quite a number of companies are experiencing very good market conditions," Clare said. "Sectorally, some are obviously more resilient than others with those who export at a clear advantage. Healthcare, pharmaceuticals, technology, waste, energy and the food sector have all been performing well.
"For us, it's about supporting customers who are going through a difficult time and ensuring we fund genuine growth opportunities."
Another area in which the bank is finding solid demand is in rebanking where it feels it is able to offer a more attractive proposition. This typically comes in the form of more flexible structures, increased funding, and delivering superior customer service. Recent new customers include Newtownards-based Rich Sauces and audio software firm APTX.
"There's an ethos here of being proactive and really trying to understand what's going on in the business," Clare said. "We need to continue to spend time with customers. If you can understand business better you can help finance it in an appropriate way.
"Our role is to continue to support customers' making credit and expertise available. A good banker should know his or her way around your business and be able to guide you through the more rigorous due diligence process that the environment currently demands.
That means the banker can tailor each deal to each customer and ensure that appropriate credit can be accessed.
"The lending we're doing is not prescriptive. Backing SMEs is about understanding the cash flow and future earnings stream of a business. Assessing the ability and track record of the management team and prospects for the sector are also critical in terms of finding an appropriate funding structure."
Once this information is absorbed, the bank is committed to working with its customers to offer advice where needed.
One of the most important factors Clare has been focusing on during the downturn is working capital. Changes she advises in the current environment may include reducing stock levels in line with reduced demand, managing creditors and ensuring efficient collection of debts. To offer assistance, the bank has launched a working capital initiative which ensures that a banker experienced in this area is part of each banking team across Northern Ireland.
"Cash flow is vital for the SME sector," Clare said. "Using our knowledge, we can spend time with a business to really make a difference to their working capital management and, enhance the funding structure to release cash from the balance sheet."
While the near future looks to be a continued case of battening down the hatches for many companies, what does the longer-term future hold for the local economy?
"Next year should bring recovery although we expect this to be fairly modest. Exporters will benefit because global demand is likely to recover more quickly, aided by a competitive exchange rate. A number of our customers are already experiencing this upturn."
In the meantime, there's the chance of increased merger and acquisition activity as the consolidation drive continues, another area in which Clare's team is involved. In the last few months they've handled both a management buy-in and a management buy-out.
Clare doesn't shy away from the harsher criticism thrown at the banking community over the last few months and believes some of the action - such as overdraft reduction - has been justified and good for the longer-term health of the economy.
"For some companies if sales have reduced and you've been managing your working capital and costs, you shouldn't need the same overdraft," she said.
This not only protects the company from becoming over-leveraged but also the bank, which operates under the same economic conditions as its customers.
"We're here for the long term and we have to do the right thing by all our stakeholders including our customers."
But for those customers with a sound business proposition, Bank of Ireland is more than willing to lend money.
"Bank of Ireland is fully committed to playing a full role in the recovery of the economy. We will achieve this through continuing to support our customers and providing advice, support, products and services including credit to businesses with viable business propositions."
CASE STUDY: Steve Orr LTD
One Bank of Ireland customer largely unaffected by the downturn is Steve Orr Ltd, the Dromore-based producer of crop packaging for the agricultural sector.
MD Philip Orr is positive about 2010 but says the company is aware that plus factors such as low interest rates and the strong Euro will not last for ever.
"For us the major challenges will be the continual drive for increased efficiencies, the cost of energy and the cost of transport. Banking services are a key ingredient for any business. I believe that following the problems experienced by the banking world in general, banks will need to get a lot closer to their customers and understand fully the liquidity needs and cash flow cycles of the business."
CASE STUDY: Munster Simms
Among those companies with whom Bank of Ireland has a strong relationship is Munster Simms of Bangor which designs, makes and markets
low voltage water systems for boats and caravans as well as for the healthcare market. It sells into both home and export markets.
Wesley Hanson, the company‚Äôs finance director, says that during the recession it has continued to invest strongly in new product development with an eye to significant sales growth in 2010.
He says a flexible approach by the bank is important. "Bank of Ireland has an understanding of the markets we operate in, our strategy and how we perform. Their pro-activity and support is appreciated. Going forward we expect the relationship to be that of a partnership between us and the bank and that the bank will be supportive of company growth plans."