Small businesses in Ireland fear a decision by a major UK bank to close its Irish operations will plunge them into an acute credit crisis by the end of the year.
The decision by Bank of Scotland could force the closure of hundreds of companies as the bank will no longer offer working capital to business customers. The move threatens to devastate the hotel sector where Bank of Scotland is responsible for an estimated 20% of all loans.
Around 5% of its total loan book is made up of small businesses, many of which now face closure given the reluctance of other banks to lend to SMEs.
"The fact remains that contrary to the lies and propaganda of the banks, SMEs are still finding it almost impossible to access credit," said Mark Fielding, chief executive of ISME, a business lobby group.
Hotels facing closure
At least 150 hotels are thought to be in immediate danger if they cannot secure credit lines from another bank. Fielding wants the government to put pressure on Irish banks to step up their lending to SMEs in return for ongoing state support.
Ireland's hotel sector has been dogged by oversupply resulting from tax breaks to encourage the construction of hotels. The domestic tourism market has been hit hard by falling consumer confidence, while attracting international tourists has also been challenging.
Paul Gallagher of an Irish hotel industry group said the withdrawal of working capital facilities in December will be "catastrophic", adding that other banks are unlikely to lend to struggling hotels as Bank of Scotland will continue to have a claim on their assets until outstanding loans are repaid.
Hundreds of jobs in jeopardy
Employees and unions expressed dismay at the announced closure, as the bank had offered guarantees that jobs would be safe for at least two years. It has now emerged that 36 jobs will be lost immediately, with hundreds more facing an uncertain future.
Bank of Scotland closed retail arm Halifax earlier this year, having embarked on a major expansion across Ireland at the peak of the property bubble. Around 750 jobs were lost as a result.
Opposition politicians said the move was an indictment of government policy, but the Irish Chambers of Commerce said it merely follows a trend by international banks to dispose of foreign assets in the wake of the financial crisis.
"It is in this context that the Bank of Scotland decision should be viewed, rather than seeing this as a commentary on the future of the Irish economy," a spokesperson said.
Earlier this year the bank's UK operation wrote to tens of thousands of SMEs informing them that it will no longer pay interest on their current account balances, despite its owner – Lloyds Banking Group – turning in profits of £1.6 billion (€1.95 bn) for the first six months of the year.