The TUC report Banking after Vickers says that government has identified £450 billion-worth of physical investment, vital to the UK over the next decade. But with the current stock of bank loans to non-financial firms (excluding real estate) at just £322 billion, banks would need to more than double their current level of lending to meet UK investment needs. This simply won’t happen without radical reform of the banking sector, says the TUC.

Banking after Vickers says that since 2008 the main focus of debate on banking has been preventing a repeat of the crash and subsequent taxpayer bailout, addressed by the Vickers Commission, and the remuneration of top bankers.

But with the UK’s growth prospects dependent on greater investment and access to credit, particularly for SMEs, the report argues that reforming the banking sector so that it better supports the real economy is the most vital banking issue facing the UK.

The report sets out four challenges facing the UK banking sector: low investment, SMEs, sectoral and geographical rebalancing of the economy and green growth.

Banking after Vickers shows that the UK’s level of investment has been either the lowest or second lowest in the G7 for 30 years, and that the banking sector has a poor track record of lending outside of real estate and finance.

While credit easing and the Green Investment Bank are positive first steps towards encouraging more lending, they fall well short of the level of investment the UK economy needs, says the TUC.

TUC General Secretary Brendan Barber said: “Much of the media and political debate around banking has been on top bonuses and preventing another financial crash.

“But while these are both important issues, people are more concerned about jobs, better wages and healthier businesses – and banks have a vital role to play in creating all this.

“Decades of under investment, compounded by banks’ poor track record of lending outside of real estate and finance, have left the UK economy dangerously lopsided. Our economy is far too focused on finance and banking, and in the South East.

“Greater lending to SMEs and support for green investment is vital to our future economic prospects but our current banking system is woefully ill-equipped to lend.

“Bold new ideas are needed to reform the banking sector so that it returns to its proper place as the engine of wider economy growth, and not as the cause of an economic depression.”

The bank will continue to provide support for businesses which trade or aspire to trade internationally and commits to providing lending facilities to support business growth and job creation.

The bank has confirmed that it met its Merlin lending intentions in 2011, which were agreed with the UK Government, exceeding the full year target to provide £38.8 billion of lending facilities to UK business customers and supplying gross new lending facilities of more than £11.7bn to Small and Medium-sized Enterprises (SMEs).

Having met its Merlin intentions in 2011, HSBC plans to lend even more to SMEs in 2012, providing there is suitable demand. In addition, to reinforce the bank’s strategy to be the leading international trade and business bank, HSBC will further support UK businesses by committing to:

• Recruit around 50 additional International Commercial Managers, ensuring customers involved in overseas trade are fully supported. This will bring the total number of International Commercial Managers to 180;
• Support export trade to the tune of £7 billion through our Trade Finance capabilities;
• Look to manage £30 billion of invoices for customers trading within the UK or internationally, providing critical working capital for these customers;
• Look to approve at least 80 per cent of applications for finance from SMEs; and
• Extend the availability of HSBC’s International Business Overdraft, which offers reduced interest rate for each overseas country a small business is trading with, up to a maximum discount of three per cent for the first 12 months.

Jacques-Emmanuel Blanchet, head of commercial banking UK at HSBC, said: “HSBC is committed to supporting UK business. In 2011, the Merlin intentions gave focus to SME lending, and we continued to enhance our support, launching new innovative products and holding hundreds of events across the UK and the world, to encourage UK businesses to share their knowledge and develop long term relationships internationally.

“In 2012 we will further increase our support for SMEs looking to grow and internationalise, across all sectors and all regions. Many of our customers are experiencing growth by trading in new markets and we are very well placed to support this, through our growing team of specialist International commercial managers and HSBC’s enviable global network, to give UK businesses the best chance of success.”

Businesses should be aware that the last possible submission date for Bacs Direct Credit payments to reach suppliers before Christmas is the 21st December. There is only a small window of opportunity in between Christmas and New Year and payments due on the first working day of 2012 must be submitted to Bacs by the 29th December if they’re to hit accounts on time.

Mike Hutchinson, head of marketing at Bacs, said: “Most of us are aware of the last posting date before Christmas for cards and presents to arrive on time, but equally businesses should be aware of the last day they can submit payments to be processed.
Research from Bacs last month concluded that small and medium-sized businesses in the UK are owed £33.6 billion in overdue payments – and one of the most common excuses for paying late, given by 37 per cent of companies, was that ‘the cheque’s in the post’, a problem that will be exacerbated over the next three weeks.

“Businesses can’t rely on the post to deliver cheque payments at this time of year. Managers would do well to ensure they have automated as many payments as possible, and have submitted all payments promptly, in line with the due date. Then they can relax and enjoy the break, safe in the knowledge that they won’t come back to work in January to face outstanding debts.”

A full list of Christmas and New Year processing dates for this year is available at: www.bacs.co.uk

Tim Breedon will be supported by a panel of experts drawn from the business and finance community, who will examine the challenges facing businesses in diversifying their finance. The focus will be on debt and credit products, looking at a range of finance choices, old and new, from corporate bonds to ‘crowd-funding’.

Business Secretary Vince Cable said:

“Businesses across the UK are still in many cases unhappy with the way they have been treated by banks.

“We have secured a rise in new lending from the biggest banks this year and credit easing is designed to provide another immediate boost. But I want to see as much competition in the market as possible and for businesses to have access to a wide range of finance sources.

“There are exciting innovations emerging that provide alternatives to bank lending. Businesses are selling bonds directly to their customers, missing out the middle-men. And peer-to-peer lending has opened up opportunities for savers to invest directly in the fortunes of UK businesses. I want to investigate and dismantle any barriers to these and future innovations.

“Tim Breedon is a highly capable and well-respected figure in finance and I look forward to working with him in the coming months as he takes forward this important work.”

The Taskforce was announced as part of the credit easing package in the Autumn Statement. It will report to Government ahead of the 2012 Budget statement.

UK businesses have been heavily reliant on banks to raise finance. The majority of smaller and mid-sized businesses rely solely on bank loans to raise finance. Only around 10 per cent of these businesses seek asset-based finance and fewer than 5 per cent choose bond or mezzanine finance.

The Taskforce will work with businesses, lenders, investors and providers of alternative finance to examine structural and behavioural barriers to raising non-bank finance. It will set out what steps are needed to ensure businesses can access a wider range of alternative finance sources.

The bank has opened a new Corporate Banking Centre in St Albans and another will open in Guildford before the end of year, taking the overall number nationwide to 22. This follows a doubling of the centres from 10 to 20 since 2007.  

The expansion is a key part of its intention to grow its relationship-based approach to commercial banking and it plans to increase its presence further in coming years.

Since 2007, the bank’s commercial lending balances have grown by more than 40 per cent, including £500m specifically to fund renewable energy sector projects.

Deposits from business customers have more than quadrupled from £1.4 billion in 2007 to £6.7 billion by June 2011. 

Keith Alderson, managing director of corporate and business banking at The Co-operative Bank, said: “Throughout a period when many other banks have scaled back support to business customers, we have not just maintained our support but stepped up our commitment.

“The rate of growth in our customer numbers, lending and deposits shows how the Bank is now challenging traditional providers.  A focus on high levels of service, built on developing long-term supportive relationships is resonating with businesses at a time when they really need support from their bank.

“We are continuing to invest to improve our future capability and scale so that we can offer an even better service to a wider range of customers.

“At this time, more than any other, businesses need guidance, advice and the support of their bank whether they are seeking new opportunities to grow or dealing with challenging economic environment.

“And as part of The Co-operative Group we are in a unique position in the market to offer customers access to a broad range of services and expertise spanning sectors from legal services to pharmaceutical care.”

HSBC is participating in the Regional Growth Fund, a £1.4 billion fund operating across England from 2011 to 2013. The fund supports projects and programmes that lever private sector investment creating economic growth and sustainable employment. It aims particularly to help those areas and communities currently dependent on the public sector to make the transition to sustainable private sector-led growth and prosperity.

The bank is creating an ‘Assisted Asset Purchase Scheme’ that will enable qualifying businesses, to receive additional funds of up to £500,000 to put towards the acquisition of assets, which would not be funded under normal commercial terms.

In order to qualify for RGF funds a borrower must be able to demonstrate that they will create additional employment, have a turnover of up to £25 million and that the asset purchase would not go ahead without RGF support. The Assisted Asset Purchase Scheme will provide a grant of up to £25,000 for each additional full time positions created by the acquisition of a new asset.

Jacques-Emmanuel Blanchet, head of commercial banking, HSBC UK said:

“I am delighted that the bank is participating in the Government’s Regional Growth Fund.

“HSBC is committed to supporting strong viable businesses and our Assisted Asset Purchase Scheme highlights this. The scheme will provide critical support for businesses that are looking to grow and recruit, enabling them to purchase the assets they need, to achieve their goals.”

Business Minister Mark Prisk said: “HSBC’s Assisted Asset Purchase Scheme will help SMEs that want to invest and create jobs – but that cannot currently access commercial funding. They will deliver a shot in the arm to local communities and help small businesses drive local growth.

“100 per cent of the RGF funding will be provided as grants to small businesses with the bank employing their regional network to administer the scheme for free.”

The cost of administering the bank’s allocated funds will be covered by HSBC. The £25 million of government investment is coming from round one of the Regional Growth Fund. Any interest earned on this investment will be used for further grants or returned to the government.

It is the first time that funds of this scale have been made available for these businesses by a UK bank, all loans will be offered on favourable terms. Successful applicants must be able to demonstrate they are financially sustainable and will deliver a positive impact to society and/or the environment.

Supporting the social enterprise sector is an integral part of RBS’ strategy to support businesses of all shapes and sizes. The new £5 million fund has been created by the bank after demand grew for a much smaller micro finance fund which the bank ran an independent charity for 10 years.

Peter Ibbetson, small business chairman, NatWest and RBS, said: “As the economy struggles, demand is rising for this type of finance. More businesses being set up with a social or community focus. These businesses, including charities, social enterprises, community interest companies and co-operatives, may be small but represent a fast growing sector which should be given every opportunity to play a role in the recovery.”

Business and Enterprise Minister Mark Prisk said: “It is vital to improve the flow of finance from banks to all sectors of the economy. The Government supports any initiative that could help make this happen and I hope this fund will create new opportunities for community businesses to get access to mainstream finance. These enterprises play a key part in the Big Society and the links forged by initiatives like this will help them move forward and grow.”

This initiative is the latest by the bank to make finance more accessible for small, grass roots businesses. As well as launching the SE100 index to help raise the profile of the UK’s top performing social enterprises, the bank announced it was investing in the Community Development Finance Association’s (cdfa) Change Matters programme to help increase flow of credit to this thriving but disadvantaged sector.

The Community Business Loan is available to established third sector organisations located and trading in the UK with social or environmental aims and who reinvest their profits for a social purpose. All applicants must be investment ready in terms of management, governance and financial position. Start-ups as well as established businesses can apply.

The clinics launch as recent statistics show that only 15 per cent of businesses applied for borrowing in the last year, reflecting a crisis of confidence among businesses. The research also reveals that while 42 per cent of businesses think they will get a business loan before they apply, 75 per cent actually succeed, indicating that many businesses don’t believe they can get finance.

The first clinic launched by Barclays Retail and Business Banking chief executive Antony Jenkins in Manchester kick started 85 UK-wide clinics, which aim to reach around 1,600 businesses.

Barclays business people will answer key questions on lending and walk businesses through the loan application process, with alternative finance providers on-hand to provide a fully rounded picture of all the financial options available. At the same time, local businesses will have the opportunity to tackle senior bank leaders head-on about the barriers to borrowing that they feel they face.

Antony Jenkins, chief executive, Barclays Retail and Business Banking said: “Barclays is committed to helping revitalise the UK economy which is dependent on small businesses having the confidence to invest and grow.

“Confidence will begin to be restored when businesses are equipped with the belief to make informed decisions about their future.

“Every day Barclays is committed to helping small businesses grow. From the top to the bottom of the UK, our lending clinics will take the mystery out of borrowing for thousands of businesses.”

It is thought that the ICB, due to report on Monday, will propose that internal ring fences should be put in place to separate the banks’ retail and wholesale divisions and that the banks should increase the amount of capital they hold.

The banking lobby has said that doing this would have a detrimental effect on the amount of money that it can lend and that the cost of finance would increase as a result. They have also said that any reforms now would derail economic recovery.

The banks say that ringfencing will remove the implicit Government guarantee to bail-out a bank that is in trouble and that being required to hold more capital will mean that there is less money to lend.

However, in a new paper, ‘Does bank ringfencing automatically mean an increase in the cost of borrowing?’, the FSB argues that the guarantee would be removed from the investment banking arm and would remain for the retail arm – the section of the bank that lends to people and small businesses.

And, increasing the capital requirements over the medium term and putting a ringfence in place would be beneficial to the structural resilience of the UK banking sector.

If the ICB suggests that capital requirements are raised to more than 10 per cent for example, the FSB recommends reforms be announced as soon as possible but that the banks be given the course of this Parliament to reach those standards. Funding for this increase can be made up from ear-marked profits and reductions in short term incentivised pay.

John Walker, national chairman, Federation of Small Businesses, said:

“The banking sector cannot be too big to fail as the taxpayer cannot afford another bank bail-out. The Government has a golden opportunity to reform the banking sector and it must stand by the promises that it has made.

“The recommendations that the ICB make must be looked at closely and the Government must act on them as soon as possible and ensure they are completed before the end of the next General Election. The Government must use this once in a lifetime opportunity to make the banking sector safer, more competitive and less burdensome on the taxpayer.”

The US Federal Reserve announced on August 9th that it would freeze short-term interest rates for two years as a measure to improve business and consumer confidence.

Philip White, CEO of Syscap, said: “A lot of UK SMEs would be far more willing to invest in business assets and their staff if they knew that the base rate was going to be capped for the next two years.”

“Businesses can fix their borrowing costs with their lender but obviously the lender has to charge them a premium for that.”

“If the Bank of England were to commit to keeping rates fixed for a set period it would act as a real shot in the arm for the UK economy.”

“All the periodical speculation that you get about rising interest rates can be incredibly unsettling for borrowers.”

Syscap explains that a lot of measures used by the Federal Reserve to try and foster an economic recovery in the US have subsequently been adopted by the Bank of England.

Syscap says that whilst commercial borrowing rates are not solely determined by the Bank of England base rate (more often it is linked to LIBOR) a commitment to steady base rates would be a very powerful message and should help keep rates across the market down.

Adds Philip White: “In actual fact in the current climate, leasing provides an ideal mechanism or facility to fix the cost of your investment, providing predictability and a hedge against future rate increases.”