Bonuses will soon be back as banks return to the black, but is small business lending looking any rosier?
Barclays and HSBC have just announced huge revenues in their investment banking divisions and for all the talk among government and regulators of taking the rampant edge off the ‘bonus culture’, we’ve seen no new legislation and it’s almost certain that avaricious excess and the City will soon be bedfellows once again.
Those banks left with major investment banking operations are profiting from reduced competition, fees earned from debt-ridden governments raising money on the bond markets and ailing-companies raising funds with new shares.
Barclays and HSBC reported profits of around £6bn between them but revenues were offset at both by huge rises in total bad debts. These were the banks which shunned government bailout money last year and a fuller picture of the banking sector’s willingness to lend won’t be available until the end of the week, when RBS and Lloyds will almost certainly report more downbeat figures thanks to their greater exposure to retail markets.
The results have been seized upon as evidence of economic recovery, but they’ll do little to ease entrepreneurs' woes (and by implication, the health of the wider economy) if banks won't lend more to small businesses. And with bad debts remaining a huge problem, small business lending is unlikely to enjoy a comparable renaissance for some time.
Barclays’ lending to small business has fallen from £67.5bn to £62.5bn in the six months to June and other banks are likely to show a more marked downturn. But then banks are stuck in an awkward Catch 22.
Under pressure to de-risk their balance sheets and cut down on risky lending on one hand while understandably expected to throw a lifeline to viable small businesses struggling with cashflow problems on the other, banks are falling back on the claim that demand is down to explain declining lending figures.
While this is almost certainly the case, it’s only half the story: it’s also unquestionably harder and more costly for those businesses who do wish to secure bank finance. And don’t expect the part-nationalised banks to be much more help.
When commentators argued that the fully-nationalised Northern Rock should be forced to lend to prospective first time buyers to boost the economy, and government responded by relaying the advice to the bank, it forced it into a U-turn: the Rock had previously been told to significantly de-risk its retail activities.
The confused advice from the government may well have contributed to the poor results it posted today, representing a first half loss of £724m with its bad debt soaring to £602m. RBS and Lloyds face a similar, if not so severe, conundrum with their business customers.
When Barclays’ results were announced, John Varley, the bank’s chief executive, said: “In April we said we would do £11bn of new lending for Britain’s businesses and households. We have well exceeded that.”
Indeed, Barclays lent £17bn. Promising new lending figures, yes, but there were still no details on how easy it is for customers to obtain loans, since that figure does not take account of how many people are redeeming their loans.
Stephen Alambritis, spokesman for the Federation of Small Businesses, told The Times: “We don’t know whether the banks are lending large sums to a small number of customers or if they are really lending to small businesses. Also, they are not telling us what charges they are making for loans in the form of arrangement and renewal fees.
“There is evidence that a lot of small businesses are being asked to reduce their overdrafts or are threatened with the facility being pulled,” he added. The picture, unfortunately, remains frustratingly unclear.