Banks pulling the plug on ailing businesses

20:33, Apr 25 2010

The trend by banks in Australia to wind up small businesses that have fallen behind is likely to take off in New Zealand, a business turnaround specialist says.

Trevor Thornton, of accounting firm Grant Thornton New Zealand, said Australian banks were starting to stop supporting small businesses "nursed for a couple of years", but now late with their repayments.

"It would seem only a matter of time before banks on this side of the Tasman start to lose patience with companies that have not been able to effectively rehabilitate themselves," Mr Thornton said.

There had been a lag, with some businesses not yet suffering the full effects of the recession, and this could see the number of insolvencies and receiverships grow unless they took remedial action, he said.

Earlier this month Australian Banking Association chief executive, Steven Munchenberg, speaking at an Australian Senate inquiry, said more and more companies were getting behind on their repayments and that they could "very possibly" be tipped into administration, receivership or liquidation.

Mr Thornton said he was already starting to see a change in the way New Zealand banks were dealing with distressed companies.

New Zealand's biggest banks, ANZ, BNZ, National and Westpac, are Australian-owned.

The Inland Revenue Department was also taking a tougher stance, and combined with the banks' view, this could mean "a long, hard winter for many SMEs [small to medium enterprises]", Mr Thornton said.

Bankers he had spoken to in New Zealand had voiced their frustration that businesses were not changing their models to fit the still tough post-recession period.