Bring Back Traditional Bank Managers, Says Group

The Forum of Private Business is responding to the announcement that the UK's major banks are over £2 billion short of hitting their small business lending target. The group are repeating its calls for better competition, more investment in regional branches and the restoration of lending powers to local bank managers.

As part of their commitment to lending £190 billion to businesses in 2011, including £76 billion to small and medium-sized companies, the ‘big five' banks have pledged to lend £19 billion in the first three months of the year. However, just £16.8 billion has been lent.

According to a joint statement by Project Merlin banks small business lending demand has declined. While the Forum's own research suggests many firms are focusing on consolidation not growth, the not-for-profit organisation is arguing that this downturn is a result of mounting alienation due to lenders' punitive risk criteria and inflated interest rates, rather than indicative of a lack of need for affordable finance.

The Forum's Chief Executive Phil Orford said: "I am disappointed but, frankly, not surprised that these SME lending targets have not been met. We are prepared to wait until the end of the year before making a final judgement but it is clear that the banks are trotting out the same old excuses when they are simply not delivering on the ground."

He added: "There is a widening knowledge gap when it comes to lenders' ability to gauge small business risk. We want to see banks invest in regional services and hand decision making powers back to local branch managers who are best placed to make key lending decisions based on realistic assessments of individual businesses. We must move away from the over-centralised, tick-box mentality we are seeing now."

Pointing to the latest official government figures on SME finance Mr Orford added: "Despite what the banks are saying, the requirement for affordable funding is not going away. There is a real, pressing need for better, more cost-effective growth finance. The problem is that small businesses are becoming increasingly alienated by mainstream lenders.

"More and more of our members are seeking out alternative sources of finance but one of the major barriers is a lack of competition in finance markets dominated by the big banks. The few new and innovative funding platforms that are out there struggle to gain a toe hold.”

The Chief Executive concluded: "To reiterate what we have said before, a lending code that is not binding, targets that banks are not meeting, and mentoring and appeals schemes of unproven merit are just not enough to fix this serious problem."

(BMcN)