According to the Government’s Trade Minister, former chairman of HSBC, Lord Green, the UK’s largest banks admit that they are not lending to small businesses and are in a “downward spiral” of poor lending decisions.
However, Lord Green also said that the banks’ chief executives are all aware of the problem, although the situation cannot be rectified overnight. Indeed, statistics show that the stock of bank lending to business has contracted by more than £150bn since the end of 2008.
Meanwhile, new figures released by the Bank of England have shown that there is a demand for finance from small firms and that there are only a few newer banking entrants to the market who are fulfilling these needs.
The Bank of England recently released figures for the Funding for Lending Scheme (FLS), which highlight that new “challenger” banks, are all lending more as a result of the FLS.
However, echoing Lord Green’s remarks, it is evident that many very creditworthy small and medium-sized enterprises (SMEs) are still being unnecessarily and unfairly turned down for loans because the bank to which they have applied has made a strategic decision to shrink its lending book.
Worried by the lack of lending to SMEs, the British Bankers Association (BBA) has called for the establishment of an independent body to “uphold ethical and professional standards” in UK banks.
The BBA has suggested that a new Banking Standards Review Council (BSRC) be set up to oversee ethical standards in banking and that it should be run by non-bankers, given the public’s distrust of the industry.
In its written submission to the Parliamentary Commission on Banking Standards, the BBA proposed strengthening the existing regulation of banks by expanding the Approved Persons Regime and suggested that the new BSRC it was proposing should have the power to strike off bankers who breached the regime’s principles.