Total bank lending to firms outside of finance and real estate must more than double in order to meet the investment needs of the UK economy over the next decade, says a new TUC report.

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 latest figures from Experian reveal that during the final quarter of 2011 the payment performance of UK firms saw a small but positive improvement from 26.17 days in Q3 2011 to 25.97 days, with the biggest improvements coming from the largest firms.

Firms with 101 to 500 employees paid their invoices three quarters of a day faster than in the previous quarter (from 25.84 days to 25.07 days), while firms with more than 501 employees improved by two thirds of a day (from 34.77 days to 34.12 days).

These businesses also led the way in improvements when compared to their payment performance in Q4 2010. Firms with more than 501 employees settled their invoices almost two days faster while firms with 101 to 500 employees improved by almost three quarters of a day – from 36.06 days and 25.79 days in Q4 2010, respectively.

Jason Mills, head of payment performance at Experian UK & Ireland, said: “Payment performance is the timeliest indicator of the current health of any business, so the overall improvement suggests that during the last three months of 2011, pressure on cash flow and finances was more manageable for most businesses.

“Feedback from our larger customers demonstrates awareness and understanding of the struggles faced by some of their key SME suppliers so are prioritising payments to them, to better support them.

“The only firms to see an increase in their payment performance from Q3 to Q4 were firms with three to five employees. The increase, however, was very small and is a timely reminder for smaller firms to credit check potential new and current business customers for signs of possible non-payment before it is too late.”

HSBC has announced a number of commitments aimed at supporting UK businesses in 2012.

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.”

As the Bank of England warns about tightening wholesale finance conditions, data from online invoice trading platform MarketInvoice has indicated that larger companies have now started to look for alternative means of short term working capital funding. The online invoice trading platform for growing SMEs, saw a record month in December 2011 with over £1 million channelled to 50 registered companies. This takes the total volume of finance channelled to SMEs via its online platform to over £3.8 million, just 11 months after MarketInvoice launched in February 2011.

Over 100 invoice auctions have been successfully funded since launch, with capital coming from institutional investors, family offices, asset managers and high net worth individuals. The largest single auction of £334,000 was successfully closed in the last month, with the funds for this auction being provided by a pool of nine professional investors simultaneously.

SMEs are still finding it difficult to raise working capital in the current economic climate, with last week’s Bank of England Credit Conditions Survey indicating that in the three months to December 2011 the availability of credit to small and large businesses largely remained unchanged from the previous quarter. The report also revealed that where traditional funding is available to SMEs, it is increasingly expensive and its terms are onerous which results in it being less effective as a tool to help owners run and grow their businesses during these tough economic times. Against this backdrop, in the last three months alone, data from MarketInvoice has indicated an in increase in the average size of companies wanting to make use of the invoice auction platform as a complement to traditional funding lines. These businesses come from a wide range of sectors, and, with revenues between £10 and £25 million, are all seeking balanced growth out of the recessionary environment. .

Anil Stocker, Co-founder and Director of MarketInvoice says: “Invoice auction volume is growing hugely at the moment, and the companies that are looking for alternative forms of short term funding are coming from diverse UK business sectors, including services, manufacturing, and construction, as well as many UK exporters. Interestingly, over the last few months we have seen a shift in the size of companies looking for short term funding, with an increasing number of larger companies looking to raise flexible capital when they most need it. With traditional methods looking increasingly expensive and onerous, and smaller businesses also struggling with late payments as their customers often now take between 60 to 90 days to pay their invoices, we expect this trend to continue well into 2012.”

“Importantly, the Coalition Government is beginning to take notice of next generation finance platforms such as MarketInvoice with Vince Cable recently announcing an industry-led taskforce which will examine the challenges business owners face in diversifying their finance sources, especially in looking beyond traditional bank products.”

A new national programme which will focus on helping small and medium manufacturing businesses to grow has launched.

The new Manufacturing Advisory Service (MAS) is now available to all manufacturing businesses across England. It will be delivered by the MAC, which is comprised of Grant Thornton, Pera, WM Manufacturing Consortium Ltd and SWMAS Ltd. It has been estimated that the new MAS will help to generate £1.5 billion in economic growth, 23,000 jobs and safeguard 50,000 jobs.

Businesses interested in finding out more about the programme can find out more by visiting www.mymas.org.

Business Minister Mark Prisk said: “Manufacturing contributes half of Britain’s exports and has much higher productivity than the rest of the economy so it is essential to our plans for growth. That is why we are taking steps to ensure our industrial base is thriving as part of a strong and balanced UK economy.

“The new Manufacturing Advisory Service will play a key role, providing tailored advice to businesses helping them to grow and thrive, with a specific focus on helping SMEs improve competitiveness and unlock their growth potential.”

Karl Eddy, head of government infrastructure advisory at Grant Thornton and head of MAS, said: ”This type of programme is vital to support Britain’s businesses and economy in growth. MAC is driven by a passion for dynamic, innovative business and has proven experience in delivering advice for growth. As we drive this historically successful programme in to a new era we encourage business leaders, innovators and entrepreneurs in the manufacturing sector to contact a local adviser to find out more about how MAS can deliver real benefits for their business.”

Small manufacturing businesses will also have access to a new initiative recently announced by the Government to improve the global competitiveness of UK advanced manufacturing supply chains. The up to £125 million fund will cover the whole of England and will help to support the UK supply chain, encourage new suppliers to invest in the UK and support economic growth.