Belfast Telegraph

Sunday 26 October 2014

Banks must loosen the purse strings

As the first two big banks to make financial reports this year recorded big profits, there was some cautious optimism that the worst of the banking crisis could be over.

However, it must be noted that Barclays and HSBC were institutions which had not suffered worst in last year’s economic freefall.

There will be much interest later in the week when previous big losers Royal Bank of Scotland and the Lloyds Banking Group return their figures. That will give a much clearer picture of how the sector is performing.

Barclays’ profits of £2.98bn were up 8% because of a strong performance by its investment banking arm. HSBC also profited from record investment bank profits, showing that confidence has returned to that side of the business. However, both Barclays and HSBC had less encouraging returns from their retail banking operation, the part used by most of us.

Nevertheless the figures are encouraging, especially when taken with other data which indicates that

the recession may be bottoming out. Share prices are on the way up, mortgage lending rose for the fifth month in a row and some confidence is returning to business.

Yet it must be remembered that all this encouraging news comes from a very low base. Things could hardly have got much worse without the Government doling out sackcloth and ashes.

The trick now is to encourage the green shoots of recovery. That would take careful economic husbandry, not least from the banks.

Barclays and HSBC are still writing off bad debts,

particularly in areas like credit card lending. It would be unrealistic, therefore, to expect them to start lending at anything near previous levels.

However, Barclays’ business has benefited from being underwritten by Government guarantees. Ultimately, the taxpayer was poised to help if needed. Therefore it is not unreasonable for the public to expect the banks to start loosening the purse strings a little.

No-one would benefit from the sort of irrational and irresponsible lending policies of the recent past which would only fuel another cycle of boom and bust.

However, prudent lending to good risks in business and home owning would do much to stimulate the economy.

Many small firms are finding the current economic climate particularly hard going and need urgent assistance to ease cash flow problems. Such firms are the backbone of the economy and the recovery will be very slow unless they can be helped back to rude health.

Similarly, the bottom has fallen out of the housing market and recovery is being slowed because of the difficulty many people are having obtaining home loans.

Not only would a loosening of the purse strings enable more people to obtain their first home, it would directly boost the beleaguered construction industry. The banks might also look considerately at those who have run into difficulty with their mortgages because of short-time working or unemployment.

Many are blameless for the economic difficulties they find themselves in. Indeed, they could point the finger at reckless decisions by bankers for causing the recession.

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