Forum for National Recovery: Loan policies defended: The banks
Wednesday 09 December 1992
Mr Buxton said he had run a small business in partnership with a friend at home. 'They live from hand to mouth. Their administration is on the whole appalling.' They were run by enthusiasts who were good at production and marketing but whose administration was left to a woman who came in three hours a week.
That was why small businesses were risky and why banks asked for security on their loans, he said. But he rejected the notion that banks were 'permanently at war' with their small business customers - a sector to which the banks as a whole were lending about pounds 40bn.
Between a half and two-thirds of small businesses were in credit and most were satisfied with the services provided by their banks. 'There is no doubt the banks have made mistakes, but businesses have made mistakes as well. This is what happens in a recession.'
Derek Wanless, chief executive of National Westminster Bank, said the role of the banks in providing the solution to business recovery had been seriously undervalued. Countering the charge that banks had not passed on interest rate cuts, he said that of the 8 per cent fall in base rates since October 1990, 7.5 per cent had been passed on. The bank's research showed the most serious problem for small businesses was lack of demand. Only 9 per cent cited interest rates.
Lending to small businesses was one of the most technically difficult parts of a bank's business, Mr Wanless said. Often the information flow was not good and a decision was dependent on the banker's assessment of the qualities of the borrower and his ability to run a business.
Nick Goulding, legal officer of the Forum of Private Business, also emphasised the importance of a clear flow of information. 'Banks don't properly and adequately assess the risk and they don't do so transparently so that people who are borrowing from them are clear about the basis on which the loans are being made. That causes a restriction in the availability of finance to people who wish to expand and it also cuts down the bank's profits because they are not lending to the right people,' he said.
John Kemp, who described himself as a self-taught economist, said: 'The lesson is that banks must not use collateral as the basis of their lending but only the plans and prospects of the businessman before them.' But Stefan Steiner, chairman of the Eland Group, a small engineering concern, disagreed and said if a business was looking for someone to take an equity risk then it should look for someone to buy shares.
Though Mr Steiner said the banks were 'an organisational shambles', the strongest criticism came not from a small business but from Ken Scobie, chief executive of Brent Walker, the leisure and property conglomerate, subject of one of the most spectacular bank rescues.
He said the late 1980s had produced 'probably the most irresponsible and negligent lending this country has ever seen'. Now, with the country 'swamped' by businesses in difficulties, bank staff with relevant experience were spread too thinly across all the problems. The banks had not allocated anything like enough people to deal with problems, nor those with talent or the seniority to take rapid decisions.
He took the view that where small and medium companies got into difficulty, the banks would ask how much they were owed and if it was only pounds 10m to pounds 15m it would be seen as 'too small to bother about'. As long as the bank had security, the company would be left to go into receivership.
- 1 All Blacks Aaron Cruden misses New Zealand flight after drinking session, has brilliant excuse
- 2 Kim Kardashian 'nude photos' leaked on 4chan weeks after Jennifer Lawrence scandal
- 3 'F*ck it, I quit': TV reporter Charlo Greene quits live on air in spectacular fashion
- 4 Alicia Keys leaks nude photo 'to create a kinder and more peaceful world'
- 5 Clothes store Joy angers mental health campaigners with Twitter exchange on bipolar disorders
Scotland could still declare independence – even without referendum, says Alex Salmond
Scottish referendum results: Cross-party consensus collapses amid Tory-Labour spat on the 'English question'
Hilary Mantel 'should be investigated by police' over Margaret Thatcher assassination story, says Lord Bell
Scottish independence: David Cameron is becoming the 'George Bush of Britain'
Plebgate MP Andrew Mitchell called officer a 'little s**t', claim court documents 'exposing ex-Chief Whip's 'record of abusing police'
Archbishop of Canterbury admits doubts about existence of God
£300 - £350 Per Day: Clearwater People Solutions Ltd: Pharmaceutical Computer ...
£70 - £90 per day: Randstad Education Birmingham: Higher Level Teaching Assist...
£50 - £80 per day: Randstad Education Birmingham: Randstad Education is the UK...
£400 - £450 Per Day: Clearwater People Solutions Ltd: Our client is currently ...