The British Bankers’ Association (BBA) along with its key member banks has been working hard on a number of initiatives to help small businesses, including smaller quoted companies. These include:
• Setting up a mentoring scheme comprised partly of current and recently retired bankers to help businessmen be better able to communicate with banks;
• Improving access to finance by looking at improving export finance guarantees, Exports Guarantee Credit Department support and syndicated debt initiatives;
• Establishing an up to £1.5bn growth fund to invest equity in companies. This has been supplemented by a £1bn regional fund as a result of Project Merlin;
• Establishing a lending code with published principles and an independent appeals procedure;
• Setting up a regular survey to ensure that there is consistently reliable information available; and
• Holding regional events to publicise the work of this BBA Taskforce.
I would urge you to read the Taskforce report to make up your own mind about this work. But, is this work out of the ordinary? Shouldn’t this have been happening whether or not there had been a banking crisis?
For example, if there is a commercial case to set up a £1.5bn growth fund, owned by – but operating independently of – the banks, then that case must have existed for some considerable time. It will be interesting to see how the corporate governance of such a fund is established. Otherwise it might just become a clearing house for the banks to convert their lending into equity when it suits them, which would help their solvency ratios.
I do not wish to carp, and I’m tempted to say, better late than never. The suggestions sound positive, and may even prove very useful, but the banks will have to be crystal clear about how precisely these measures will work in practice. I have a lingering concern that they are still not engaging actively with their customers. Indeed I am wondering whether they want small businesses as customers at all. They say they have money to lend. Small companies say it is too expensive. Under normal economics, the price would move to equalise supply with demand.
Small companies are the engines of growth in our economy. They are the companies which grow and create jobs in the UK. Finance is the fuel for those engines of growth. Banks are the petrol pumps, a necessary part of the process, but they are neither the drivers nor the vehicles for delivering sustained economic growth.
I think it is time for the banks to redefine their values and beliefs – how they align their behaviour with UK economic needs and positively address how they are economically useful. (We’ll wait a bit longer before we ask the question about social usefulness.) The BBA initiatives are potentially an effective short-term fix, but long-term change is needed as well.
Tim Ward is Chief Executive of the Quoted Companies Alliance (QCA), the membership organisation of the small and mid-cap quoted sector working in the UK and Europe to promote and maintain vibrant, healthy and liquid capital markets. His past roles have included head of issuer dervices and head of marketing at the London Stock Exchange and finance director at FTSE, the index company.
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