Big banks give up on taxpayer backing for lending fund

Jill Treanor, 14 October 2010 


Britain’s six biggest banks stepped back from demanding taxpayer support for a £1.5bn new business growth fund for small firms at a high-level meeting with George Osborne and Vince Cable tonight.The chancellor and the business secretary were presented with a dossier by the banks with 17 initiatives intended to demonstrate the industry’s willingness to lend to small firms.


The chief executives of Barclays, Royal Bank of Scotland, Lloyds Banking Group, Standard Chartered and the heads of the UK operations of HSBC and Santander hope the plan will head off any draconian action by the government to force them to step up lending.


John Varley, chief executive of Barclays and chairman of the taskforce set up by the banks to review finance to small businesses, said: “As banks we have an obligation to help the UK economy return to growth. The private sector will play a key role in the recovery and it’s our job to help viable firms to be successful.”


An early draft of the dossier had set out a case for banks to ask the government whether it would inject taxpayer money into the new fund. But in the final presentation the banks pulled back from asking for taxpayers’ money and said the new fund could reach £1.5bn, more than initial estimates.Instead, the banks asked for government “support” and said they would “welcome additional shareholders” as well as offering ministers the opportunity to nominate a representative to sit on the board of the fund, which will have its own chairman and chief executive.


Initially, the six banks intend to put in between £300m to £350m to the fund, which will take equity stakes in companies requiring between £2m and £10m in capital. The smallest stake would be 10% and be held for at least five years.The 17 initiatives range from improving customer relations, to providing better finance and trying to ensure businesses understand why their applications are being rejected. Key points include:


• Supporting a network of business mentors by working with existing mentoring networks and business groups.

• Establishing clear ways to appeal when loan applications are declined, monitored by an independent reviewer.

• Initiating refinancing talks 12 months before any loan comes to an end.

• Establishing and investing in the new £1.5bn business growth fund to provide capital for viable businesses that want to invest and grow.

• Improving access to trade finance.

• Holding regional events throughout 2011 to enable businesses to meet key staff from the banks to answer questions and explain what services are available.

• Establishing a business finance roundtable where senior bankers and business groups would meet regularly to discuss and review trends.


Osborne and Cable issued a joint statement after the lengthy meeting with the banks, which followed months of arguments with the industry about why the supply of credit was so low. It said: “This is an important first step and we welcome it. It is important that the banks now deliver on these plans.”


The banks acknowledged for the first time that there was a gap between what businesses are prepared to borrow and what banks want to lend and that the “price of credit has changed” since the crisis began. But they argued it has now returned to more normal levels, rather than the easy terms and cheap loans offered in the run-up to the crisis.


The banks want the government to make changes that would make it easier for them to lend. They want to ensure that new rules on liquidity – demanding that they own assets that can be sold quickly in a crisis – are not tougher than those imposed internationally. They also want the instruments that are counted for liquidity purposes to be widened to included covered bonds and would like to kick-start the market for asset-backed securities, used before the crisis to package up loans.


Industry leaders and smaller lobby groups gave the package of ideas a cautious welcome. Matthew Fell, director of competitive markets at employers’ body the CBI, said: “Banks have a big job to rebuild effective relationships with companies. Our members are likely to appreciate in particular the measures to create a network of mentors.”


David Frost, director general of the British Chambers of Commerce, said: “The proposed business growth fund will be welcomed by the minority of SME businesses seeking equity investment. But we need to remember that many businesses are not seeking equity investment – so the improvement of lending processes and business-bank relationships must be the focus of any reform effort.


“The faster these reforms are implemented by the banks, the faster confidence will return to the companies that will drive the UK’s economic recovery.”


Source:The Guardian


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