Addressing the Joint Oireachtas Committee on Finance today (Thursday, October 18th) , IFA President Joe Healy accused vulture funds of killing off-farm businesses that have the potential to repay their debts over time and return to viability.
Healy said that this short-term debt recovery approach is damaging as the repayment capacity of the business is not considered.
He said that this issue is a particular problem for the farming sector because the security value to debt level tends to be significantly higher.
Central Bank figures indicate the overall level of outstanding borrowings in the agriculture sector are falling over the last eight years.
In 2010, outstanding credit was estimated to be €5.1bn. In June it was estimated to be €3.6bn - a reduction of 30%.
In the wider context, agriculture as part of the SME sector represents 22% of all new lending.
These figures reflect the importance of the agricultural portfolio to the wider economy, with particular importance in rural economies.
"A loss of confidence"
Joe Healy said farmers view banks who sell their loan books as abdicating their responsibility to see through their dealings with their customers.
“There is a loss of confidence in the banks among the farming community. They have to recognise this and provide all possible solutions to a borrower before the sale of loans to vulture funds.”
Engagement with loan owners
IFA Farm Business Chairman - Martin Stapleton - said there must be enforcement by the Financial Regulator, including information on the loan owners; the number of loans they own; and the profile of borrowers.
“Borrowers must have the option to engage directly with the loan owners, and not only through third-party agencies."
He said that the current system of employing asset managers as intermediaries is a complete failure, as funds are instructing the asset managers to recover par debt plus costs as a sole option.
"There must be accountability to the Minister for Finance and to the Houses of the Oireachtas.” He noted.
He said the current secrecy around sale values leaves the door wide open to ‘sweetheart deals’ at the expense of the borrower and the taxpayer.
"It is unforgivable that loans are being sold to foreign hedge funds for less than could be recovered from the borrower." "Furthermore, profits from these transactions are leaving this country tax free," Stapleton concluded.
Image source: IFA