A survey of members of nara (The Association of Property and Fixed Charge Receivers) has forecast that banks that have been nursing problem debtors for some time will increasingly foreclose on those companies, leading to a corresponding increase in receivership in 2012.
The survey was carried out between 12th and 15th December 2011 to assess the levels of receiverships in 2011, to compare this with last year’s survey and to look forward into 2012. nara is the professional association for Property and Fixed Charge Receivers with over 360 members and provides education and training to maintain the highest standards in the profession.
Since 2008, the respondents had seen a steady increase in the number of receiverships, with 37% seeing an increase in 2011 from 2010 and 43% taking a similar number of appointments. 62% are expecting an increase in 2012.
In the survey of nara members carried out a year ago, five key factors emerged that respondents believed would have an impact on the level of receivership in 2011. The new survey confirmed that four of these five had had a significant impact, the key one being ‘Banks deciding to take action on recovering loans’. With an ‘increase in interest rates’ not happening, the other factors were a ‘lack of lending by banks’, a ‘dip in confidence’ and ‘Government cuts and unemployment levels’.
It was felt for 2012 that the attitude of banks to longstanding debtors would play an even more significant role:
“Banks have woken up that they cannot any longer “extend and forget”. Also, global liquidity/eurozone activities are forcing banks to act and believe that they have already Treated Customers Fairly (TCF)”
“The lenders have realised that the problem is here to stay. During 2011 they worked out/sold the easy wins – mostly prime property. They now have lots of secondary property to deal with and it will take years. They still haven’t written down the loans to the right level.”
There is also a fear that there was no end in sight to the problems with the economy which would impact on business confidence:-
“Basically, the economic downturn is becoming protracted with no guarantee in the short term that there is likely to be any improvement in the viability of a customers business or their ability to service debt improving. From experience, many customers have effectively abandoned the proactive management of the property and are biding their time collecting rental income knowing that at some stage in the near future the inevitable will happen and the lender will deal with a formal recovery situation.”
There was also concern expressed that there was a reluctance to use receivers in order to save costs and that alternative resolution methods were being used:-
“There is an increasing tendency for some banks to see Receivers as purely instruments of their will rather than as independent professionals, which presents both sides with challenges.”
Paul Batho, Chief Executive of nara commented: “The survey of nara members has confirmed that the economic situation is having a significant impact on the level of receiverships. Our members have seen an increase in appointments in 2011 and anticipate a further rise in 2012.
The reluctance of many lenders to take the ‘final step’ into receivership is looking likely to change in 2012 as they can no longer continue to carry non-performing loans and will need to take action. Although many lenders are seeking the advice of professional receivers, we continue to urge lenders to work with nara members in order to utilise their skills and experience in this very specialised area. Active professional management of a situation where the borrower is in default will produce the best result for all the parties involved”
Other comments by survey respondents:-
“Signs that banks will address long standing problems they have been prepared to sit on so far. Signs that debts rescheduled at the start of the credit crunch are coming up to review again and banks are accepting the inevitable. NAMA looks to be turning out to be a “damp squib” for most LPA practitioners – will this change during 2012? Fee pressure and competition is intense – some LPA practitioners seem to be prepared to work for next to nothing…”
“Inability of borrowers to strip much more in way of cost from their businesses – more aggressive stance of some lenders – more aggressive stance being taken by HMRC (often a major creditor of distressed businesses) – loss of income (lease expiries/ defaulting tenants) in relation to investment properties that have been sufficiently income producing to keep lenders at bay until now”