Since the financial crash triggered full-scale recession in 2008, high street banks have proven somewhat wary about lending. This issue is limiting the growth opportunities for SMEs and has become so severe that the government has been forced to step in with lending incentives for building societies and smaller banking chains.
It’s a major step forward in terms of transparency says Danny Alexander
Now Chief Secretary to the Treasury, Danny Alexander, has revealed that all major UK banks will reveal details of business loans granted since January in thousands of areas throughout the UK. He believes that this is the most effective way to trigger lending for small businesses as it will introduce an element of localised competition to the banking platform.
This research, which will be provided voluntarily on a quarterly basis by chains such as the Royal Bank of Scotland, Lloyds Banking Group, Santander and Barclays, will be published jointly by the Council of Mortgage Lenders and the British Bankers’ Association. It is hoped that this initiative will help the government to understand which localised areas could use more help when it comes to acquiring badly needed business funding.
Mr Alexander claims businesses will benefit hugely from this initiative.
He says; “Businesses will be able to see exactly where the major banks are lending – up to within a few streets of their premises.
“It is a major step forward in terms of transparency and should encourage competition by helping smaller lenders to identify gaps in the market and allowing businesses to hold their local bank to account where they aren’t lending.”
Yet businesses in certain areas need not wait for their localised information to be revealed, as the BBA has already released data pertaining to key areas in England and Wales. Out of the 120 locations, only 22 managed to demonstrate an increase in lending to SMEs in the past 12 months – which, considering the progress made in the economy throughout the period, is somewhat worrying.
BBA chief executive Anthony Browne does not believe that an unwillingness to lend by the big banks is the cause of these figures.
He says; “In these difficult economic times many businesses are building up large cash reserves and paying down debts rather than taking on more borrowing.”
With international investment into the UK on the rise and the economy steadily improving, this is traditionally the time businesses seek to expand in order to maximise profits – begging the question how will they manage to do this with lending remaining at rock bottom?
Do you think this new scheme will encourage banks to lend in order to remain competitive, or will it simply discourage businesses in low lending areas from applying for financial assistance?
