Banks ‘still lending’ despite credit crunch
Banks are still prepared to lend to businesses in the right circumstances but the credit crunch has not yet ended, according to the chief executive of the British Bankers’ Association (BBA).
Angela Knight was speaking ahead of the first reception held by the BBA at Stormont to forge closer links with Assembly members.
The informal meetings are already held at Westminster and Holyrood, and aim to give politicians a chance to air any concerns about the industry.
Discussing the reasons behind the event, Ms Knight told Business Telegraph: “Banking is complex, it always has been complex. While we made mistakes, the majority of banks are surviving well.
“Secondly, there has to be an order in which we approach the next stage. That is getting out of recession, paying back the taxpayer and then addressing regulation, in that order.”
She added: “We are a trade association representing 227 banks from 60 countries. We need to promote what we’ve got and we need to make it clear our doors are open to any politician who wants clarification or numbers on a given issue.”
Lenders, including Northern Ireland’s big four banks, are still being criticised for not making finance available to businesses.
Ms Knight said banks are lending, but the cost of finance to banks means the market has inevitably changed.
“There is still a credit crunch. There’s still a shortage of money on wholesale markets,” she said.
“Banks are like any other business where raw materials are refined down into products. What you pay for sugar beet is not the same as you pay for sugar on supermarket shelves.”
She points out that the financial crisis has resulted in banks having to double the amount of capital they hold. As a result banks are more likely to lend to businesses through loans rather than overdraft facilities that cost them more.
The Institute of Directors last week rubbished banks’ claims that they are providing finance to business in a survey showing many of its members who sought financing in the last year were turned down.
In its survey of 1,045 directors, the IoD found a quarter said that they had tried to access backing from the institutions they banked with in 2009/10. Of this quarter, 57% of directors said that their application for finance had been rejected.
Ms Knight said that amounted to about 14% of companies and this was “about right in a recession” as certain firms would not have a business plan that measured up or would be seen as an increased risk.
She said that even for those companies who believe nothing had changed for them, market conditions could have changed banks’ assessment of them. The banking association chief added: “Recessions normally come in cycles. But if you’ve been in business since the early 1990s you’ve seen 20 years of growth.
“Those who came out of university then and are now 40 and in senior managerial positions haven’t seen a recession before.”
Ms Knight said that while there had been fragile signs of improvement there is “no magic bullet” to speed up the recovery.