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When Jonathan Eddy wanted finance for his Basingstoke-based business, one of the traditional high street banks offered him a competitively priced loan – but then threw in fees that made it too expensive for him to proceed. Eddy, managing director of Asset Advantage, has a clear view why. “The traditional high street banks have forgotten how to lend,” he told Vince Cable on Friday on a tour of the Reading office of Aldermore, a new-style bank which came up with a financing deal that suited Eddy.
Another businessman, Paul Overfield, director of forklift truck maker Bendi, explained to the business secretary that big banks now wanted the bosses of established businesses – not just start-ups – to put up their homes for security for loans.
Cable is accustomed to hearing such views about the big four – Lloyds Banking Group, Royal Bank of Scotland, HSBC and Barclays – and encouraging so-called challenger banks such as Aldermore to step up lending to the small businesses that he regards as the life blood of the economy.
The business secretary said it was “sad” and “worrying” that the Co-operative Bank was pulling out of new business lending.
“It is very sad and quite worrying really because we are losing competition,” said Cable.
The situation has deteriorated ever since the Cruickshank report a decade ago which found that “business lending was basically an oligopoly with very high margins and very poor service”, Cable said.
“Some 13 years on the structure of the industry is even more concentrated,” said Cable. “
Attempts to foster competition are floundering. The Co-op had to pull out of talks to buy 632 branches from Lloyds and the sale of a branch network from the other bailed out bank, RBS, to Santander, also broke down. With both branch networks now destined for stock market flotations, reviving old brand names, Trustee Savings Bank and Williams & Glyn’s respectively, Cable said he wanted to ensure they were more committed to business lending.
The financial crisis exacerbated the need for competition as competitors pulled out. Phillip Monks, chief executive of Aldermore, cited Irish and Icelandic banks as well as Dutch bank ING. “They’ve all cut back on their lending to [small and medium sized business] … the total supply of finance has diminished,” said Monks.
Aldermore hopes to benefit from financing Cable’s business bank which, eventually, aims to hand out £1bn to finance small business growth. The first £300m of loans are expected in the summer.
Cable said some international banks were expressing an interest in coming to the UK, such as the German savings banks Sparkasse.
But he remained concerned about the lending strategies of the bailed out banks, even as the debate about how to privatise them takes centre stage after the International Monetary Fund called on George Osborne this week to devise a “clear strategy”. Loosening lending criteria could be “in the interests of the wider economy … but they will argue that the short-term interest of their shareholders are not well served (by doing that)”, he said.
Stephen Hester, the RBS boss, recently insisted that the 81% state-owned bank lends more than any other bank and has £20bn available to lend to viable customers. But the British Bankers’ Association released data on Friday showing business lending had fallen again in April, the third consecutive month of net repayments and the fifth in six months.
Cable said he was not an advocate of a quick sell off of RBS, whose shares are trading at a £14bn loss on the £45bn pumped in by taxpayers.
“We’ve all agreed that in the long run they [the bailed out banks] should go back into private ownership but particularly in the case of RBS I don’t see what the hurry is,” said Cable.
“The share price is so far below the original acquisition price,” said Cable. “And there are issues which anybody wanting to buy bank shares would have to consider – the question of competition commission referral is still there,” said Cable.
“There is a legal process … there is quite a strong possibility that something might happen,” he said, referring to the recommendation by the Independent Commission on Banking that a competition review should take place in 2015 if competition on the high street had not improved by then. Earlier this month the Office of Fair Trading also said it would take until 2015 to see if measures to make it easier to move current accounts, being introduced in September, would make a big difference to high street banking.
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