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Flood of insolvencies predicted in Scottish construction

A building expert has warned of a “dam of insolvencies fit to burst” in the Scottish construction sector.

Scottish Building Federation (SBF) Chief Executive Michael Levack spoke out as a new study showed that confidence in the industry is lower than in the first quarter of 2009, when the economy was in the full grip of recession.

The SBF`s Scottish Construction Monitor study for the third quarter of 2009 also sought to gauge the quality of the relationship between individual firms and their bank.

The survey found that just over one third (34%) of construction firms seeking bank finance for their business over the past year have been able to secure it on satisfactory terms.

Almost a quarter (24%) of the firms which which sought finance had their request turned down while 14% were offered finance on unacceptable terms.

Three quarters of employers responding to the survey described their finances as “secure” but said that the outlook for their business remains difficult.

However, 14% said that without additional bank finance, their business would be forced to restructure or to lay off workers or could even struggle to survive.

Levack said: “Despite efforts to talk up recovery, the outlook for many Scottish construction firms remains extremely tough.

“It is also absolutely clear that restrictive lending practices and unaffordable credit continue to blight the industry and are one of the reasons why confidence remains so shaky and the prospects for recovery so uncertain.

“When it comes to government investment, we all know that the cupboard is bare. That makes it all the more frustrating that banks – some of the larger of which are majority-owned by the taxpayer – are failing to meet their obligations to increase business lending and help stimulate recovery in the private sector.”

He added: “We have already seen the number of Scottish construction firms going bankrupt increase significantly at the beginning of this year.

“My fear is that there is a dam of further insolvencies in the building industry that is fit to burst.”

Over the past year, the percentage of respondents who are “much less confident” about their company`s prospects over the forthcoming 12 months has increased steadily from 14.1% in Q4 2009 to 25.3% in Q3 2010.

The confidence index has slipped by 17 points since the beginning of this year and now stands at minus 37, lower than the first quarter of 2009 when it was minus 32.

A confidence index of +100 would indicate that all survey respondents were much more confident about future prospects, while -100 would indicate that all survey respondents were much less confident about future prospects.

The survey was carried out between 25 August and 10 September with 84 construction firms responding.

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