Showing flexibility
Editorial
Stabroek News
November 11, 2003
It was good to read in the latest issue of Stabroek Business [ please note: link provided by LOSP web site ] that the new managing director of the National Bank of Industry and Commerce (NBIC), Mr Michael Archibald, had been showing flexibility and imagination in the handling of the bank's substantial debt portfolio. In the last few years, many well established companies have experienced severe financial disabilities and a cash flow crunch. This has been contributed to by high bank interest rates. Moreover, the Financial Institutions Act of 1995 has very specific requirements relating to loan classification and non payment of instalments and this has in some cases forced the hands of the banks to take harsh action against defaulting companies. There is nothing in our law comparable to the famous Section 11 in American bankruptcy legislation which allows a company suffering severe cash flow problems to apply to the court for temporary relief from its creditors while it tries to regroup and prepare a suitable payment plan.
Mr Archibald told Stabroek Business that the bank had been restructuring the loan portfolios of a number of companies in distress. Receiver/managers had previously been appointed for some of these companies and the bank had been taking a second, sympathetic look at their situation. In one case, which he referred to, a substantial amount of interest had been written off and the owner had been put back in charge of his business. Responding to allegations that the bank had previously been hostile to business, Mr Archibald explained that it had been necessary to call in the debentures in some cases as customers had refused to accept the gravity of the situation they faced if they did not restructure their operations. While some had been willing to change the way they did business and even undergo lifestyle changes in the interest of improving their position, others had not been. "Many people had to see action being taken before they became willing to make the necessary changes. After it registered that someone else is in the chair, then these companies came around to the position that it will be better to sit and talk.. of course after they called us all sorts of names."
There can be no doubt that there has been poor management in some cases and this has contributed to the problems businesses have faced. But it must also be said in fairness to our entrepreneurial class, that businessmen particularly in areas like manufacturing, have had to run a virtual obstacle course to survive which has included high interest rates, short-term loans, political instability and the resulting depression in the economy and low demand for products from customers. It is therefore refreshing that at least one bank has sought a new approach in dealing with this situation. Owners working with the full support of their bankers to reverse a tight situation can be a dynamic combination, especially where there is a clear recovery plan with set targets. Perhaps a few more businesses will survive intact instead of being sold to the highest bidder, in some cases just the bare assets not as a going concern.
The kind of creative initiative shown by NBIC's new managing director is a shot in the arm for beleaguered businesses. But at the end of the day, as the re-elected Chairman of the Private Sector Commission, Dr. Peter de Groot recently so correctly stated, "the most important issue and challenge facing the private sector is the maintenance of a stable political environment. The lack of this enabling environment has led to and will continue to lead to increased levels of crime, reduced levels of private sector activity, reduced investment and increased loss of human resources through migration."