The Central Bank has revised and re-issued the Code of Conduct for Business Lending to Small and Medium Enterprises (SMEs) which will take effect from 1 January 2012. It will replace the original Code of Conduct for Business Lending to SMEs issued in 2009. The introduction of the revised Code follows a review of the "financial difficulties" requirements in the existing SME Code as part of the Central Bank's commitments under the EU/IMF programme.
The revised statutory Code, which is issued under Section 177 of the Central Bank Act 1989, sets out new requirements for lenders when dealing with SMEs in, or facing, financial difficulties. It expressly recognises that each SME needs to be considered on a case by case basis.
The Code's objectives
- To facilitate access to credit for sustainable and productive business propositions;
- To promote fairness and transparency in the treatment of SMEs by regulated entities; and
- To ensure that when dealing with financial difficulties cases, the aim of a regulated entity will be to assist borrowers to meet their obligations or otherwise deal with the situation in an orderly and appropriate manner.
A borrower must be classed as being in "financial difficulties" where the credit facility of the borrower is in arrears for three consecutive months or in the case of an overdraft facility, where the approved limit of the facility is exceeded by the borrower and remains exceeded for 90 consecutive days without engagement with the borrower.
What are the changes in the revised Code?
The Central Bank, in their information release, point out that under the changes lenders will be required to meet a number of revised provisions when working with SMEs to address financial difficulties. These include the provision of information relating to:
- The lender's procedures for dealing with SMEs in financial difficulties, including timeframes involved;
- The importance of an SME engaging with their lender to address their financial difficulties;
- Details of fees or charges that may apply to the SME as a result of financial difficulties and information on methods to mitigate such fees or charges;
- Details of the type of information the lender may require from the SME when assessing their case; and
- Information on the SME's right to appeal a lender's decision on a lending arrangement.
The information release also identifies the additional new provisions introduced in the Code which require that:
- Lenders must confirm to the SME the information that must be provided by them for an alternative repayment arrangement assessment to be undertaken.
- A lender must complete its SME alternative repayment assessment and inform the SME of its decision within 15 business days of receiving all information required from the SME.
- A lender must have procedures in place to allow an SME to appeal their decision on an alternative repayment arrangement.
- Where an SME is concerned about meeting repayments and approaches the lender, a lender must offer the SME an immediate review meeting to discuss their circumstances and assess the potential for the SME to be offered an alternative repayment arrangement.
The revised Code will come into operation on 1 January 2012. In addition, it is expected that a full review of the operation of the revised Code will take place during 2012.