SMEs at… risk from vulture funds, warns Musgrave’s…

One of the country’s biggest wholesale and retail groups has warned that small and medium enterprises (SMEs) must be protected when banks sell on loans to international funds.

Changes are “urgently needed”, according to Musgrave Group, which operates the SuperValu and Centra chains, often in partnership with independent franchise owners.

Those independent retailers are being encouraged to refinance away from banks, leaving them vulnerable to price hikes or enforcement when US funds take over their debt, the company said. It felt that lenders are pushing customers away because they are focused on debt recovery, or leaving the country.

The Musgrave Group’s 900 retail partners employ over 30,000 people. It wants funds that buy SME loans to be regulated, and for ownership of such debt to require Central Bank authorisation, “to protect consumers, including SMEs”.

It set out the case for regulation in a submission to the Department of Finance, which launched a public consultation process on the issue of loan portfolio sales in August.

Musgrave said its Retail Finance team, which works with independent retailers and their accountants and solicitors, has witnesses a rise in cases where firms have been asked to finance away from their own bank over the past 18 months. The submission was one of a number, including from advocacy groups, businesses and politicians made to the department.

In its submission Ulster Bank warned against the potential impact of legislation, saying that US funds that have actively been buying up portfolios of loans here will move elsewhere if regulation is too strict.

“The importance of a functioning market place for the sale of distressed assets and debt as part of the overall recovery of the Irish economy should not be overestimated,” the bank said.

Currently, when loans are sold by the main banks or Nama, which are regulated, to buyers including so-called vulture funds, the purchaser is not bound by rules that had applied to the seller. These include the Central Bank Code of Conduct of Mortgage Arrears and the Code of Conduct for business lending to Small and Medium-Sized Enterprises.

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