European banking lobby chief says low bankruptcies ‘hurting viable businesses’

The head of the European Banking Federation (EBF) told a Dublin audience on Thursday that the low level of company insolvencies internationally amid the Covid-19 crisis, as a result of government efforts to protect business, is harming viable businesses and the economic recovery.

"Keeping unviable businesses alive hurts viable businesses," said Wim Mijs, the chief executive of the EBF, on a British Irish Chamber of Commerce webinar on Thursday. "Basically, you are keeping a dead horse alive. They need to be dealt with."

Insolvencies

The lobbyist said it has become “harder to discern” between businesses that have a future in the post-Covid world from those that do not, as companies hit by the Covid-19 crisis have availed of government supports and bank forbearance on problem loans.

Irish corporate insolvencies for the first nine months of the year are down over 35 per cent from the same period last year, and 37 below the 439 collapses recorded for the corresponding three quarters in 2019, before the pandemic, according to figures published accountancy firm Deloitte earlier this week. The firm said that insolvencies are expected to increase in the coming months as government supports are phased out.

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The figures echo an international trend. Trade credit insurer Euler Hermes estimated in a report this month that business insolvencies are expected to jump 15 per cent globally next year, following two consecutive years of decline. Insolvencies dropped 12 per cent in 2020 and are forecast to fall by another 6 per cent this year, according to the insurer.

Even with the expected increase in 2022, overall insolvencies will likely remain 4 per cent lower than in 2019, before Covid spread globally, it said.

Meanwhile, Mr Mijs said that he hoped the Joint UK-EU Regulatory Forum, which both sides of Brexit negotiations agreed last March to set up to facilitate dialogue in financial services issues, will be “rational and not overly political”.

Forum

The hope in the City of London is that the forum could help UK finance firms to one day win back some access to the single market, after they lost EU passporting rights at the end of a Brexit transition period.

Mr Mijs said that London will remain the only truly global financial centre in Europe and a major divergence in financial regulation and rules between the EU and UK would only push activities to other places, like New York and Singapore.

“It would help if we recognise there is one global financial centre in Europe, which is London, and a large market, which is the EU, and then work together,” he said, adding that if the EU and UK try to “punish each other” in financial services, the European economy as a whole will suffer.