Member Article

The proposal from the Labour Party to force banks to sell branches when they reach a certain size smacks of political opportunism as opposed to commercial and economic good sense.  Whilst any meaningful and effective initiative to increase competition and in turn lending is to be applauded it is difficult to see any value for the embattled SME owner from this latest proposal.  Indeed it is not as if government hasn’t been trying to increase lending with little success.

The current level of concentration in the UK banking industry is substantial.  As an aside let us not forget that one of the principal causes was the decision to “allow/encourage” Lloyds to acquire HBOS back in the early days of the financial crisis and look where that got us all.  As a mature industry that level of concentration is no different to many other less headline grabbing sectors.  The reality of this situation is that rather than government (or opposition) by initiative (at last count there were in excess of 900 schemes aimed at increasing lending to SMEs according to the Federation of Small Businesses) the focus should be on sustaining economic growth and recovery and on reducing regulation.

The reality is that creating many new smaller banks is simply not a strategy that stands much scrutiny.  Smaller banks inevitably tend to show greater lending caution to smaller companies.  This is unsurprising given their (perception) of risk.  This is likely to be even more pronounced in the early days for a new bank.  So creating a series of small risk adverse lenders may actually run the risk of stifling recovery.

So what does this all mean for UK SMEs?  The UK banking sector is a mature market and was highly concentrated long before our current troubles.  For sure banks should be lending more and providing the working capital to ensure the current green shoots flourish.  That has to be a matter of confidence and not some draconian intervention in the market.  For our typical client one cannot help but feel that if our politicians focussed more on reducing regulation and fundamentally got out of the way of small businesses and their owners they would be doing them a favour.  Bank bashing and lending initiatives are little more than frustrating diversions.

 

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