With criticism mounting over the banks lack of lending to business, a task force composed of representatives of UK banks and the British Bankers’ Association (BBA) has been convened to find ways to the apparently vexed question of how to lend money.
The task force will include a steering group comprising the chief executive officers of the six largest UK banks - Royal Bank of Scotland Group Plc, Barclays Plc, Lloyds Banking Group Plc, Santander UK, Standard Chartered Plc and HSBC.
Bank of England statistics show that net lending to businesses fell by £3.2bn in the first quarter of this year. The main high street banks, such as Royal Bank of Scotland and Lloyds Banking Group, this month announced an increase in the amount of money lent to small business customers, but also claimed that demand for new loans was down.
At the same time the number of complaints to the Financial Ombudsman Service about small business bank loans has risen by 119% in the past year. Small business owners made 496 complaints to the ombudsman about loans and overdrafts in the year to March 31, compared with 226 in the previous 12 months.
Complaints against all financial services providers by small businesses rose to 4,656 in the 12 months to March 31, 43% higher than a year earlier. This was a faster increase than complaints by consumers, which rose by 27% over the year to 158,356.
The banks themselves have been on the defensive over lending in recent weeks. Lloyds CEO Eric Daniels said last week in response to criticism that it wasn’t a case of the bank being “mean” but that there is a lack of demand because businesses don’t want to take on debt, while BBA chief executive Angela Knight has claimed that banks are "providing good finance to viable business" but firms were looking to cut debts due to the impact of recession.
Stephen Green, who is both chairman of London-based HSBC Holdings Plc and of the BBA, sent a letter to Chancellor George Osborne to explain the reasoning behind setting up the new group. “We agree with you the essential importance of ensuring that credit is available to viable businesses and particularly for the recovery,” Green wrote in the letter. “A variety of factors have an impact on this, and we recognize the collective role we have to play.”
The task force will “assess the demand for business finance” and “make recommendations on those areas which relate to the liquidity and the funding of the banking system which are directly material to the provision of business finance”. It will work with the Treasury, the Bank of England and the Department for Business, Innovation and Skills.
One-third of UK firms that applied for credit in the first six months of the year were rejected, according to a report from the Institute of Directors, a business lobby group.
