Banks: Lending

Debate between Lord Empey and Lord Popat

Wednesday 5th February 2014 Lords Chamber

[Lord Empey]

To ask Her Majesty’s Government what assessment they have made of the success of the steps they have taken to encourage banks to lend to small and medium-sized enterprises.

[Lord Popat (Con)]

My Lords, the Funding for Lending scheme is incentivising banks to increase lending to businesses. In addition, the Enterprise Finance Guarantee scheme has underpinned £1.4 billion of lending since 2010, and the Government are supporting the development of alternatives to bank finance. In the last quarter of 2013, the banks lent an average of £4 billion a month; in the same period in 2012, the average was £3.1 billion. That trend is positive and encouraging.

[Lord Empey (UUP)]

My Lords, I of course welcome the establishment of the business bank and the additional funds earmarked for it. However, as the Minister knows, the vast bulk of business lending in the UK comes from commercial banks. With a recovery under way at last, does the Minister not fear that the banks could take the easy way out and divert funds needed for SMEs into a heating and unproductive housing market, thus ensuring that the real wealth creators of this country are unable to help our economy grow?

[Lord Popat]

My Lords, we launched the Funding for Lending scheme to kick-start the housing market and to help our SMEs. Now that the housing market is picking up, the Government accept that the Funding for Lending scheme no longer needs to support lending to households. That is why the scheme’s fire-power has now been refocused to underpin the supply of credit to small businesses, where it is most needed.

Start-up Loans

Debate between Lord Empey and Lord Popat

Wednesday 20th November 2013 Lords Chamber

[Lord Popat]

My Lords, it is pleasure to answer my noble friend’s question. He brings with him a wealth of experience both in business and in corporate finance. The business growth fund is a welcome initiative, with five or six clearing banks putting together some £2.5 billion to lend money to new and growing businesses. I imagine that it will do a very good job for special and medium-sized businesses, which can borrow money on the basis of venture capital. Therefore, we welcome the initiative. The good news is that not a penny of taxpayers’ money is involved in the growth fund.

[Lord Empey (UUP)]

My Lords, perhaps I may bring the Minister back to the third point made by the noble Lord, Lord Stoneham. Is it not the case that, the way that banks have been operating in recent years, the pendulum has swung from golf course lending to computer program lending and there is no balance between the two? Surely there has to be a regional and more local focus to understand the persons and the nature of the business for which funding is being sought. Is it not the case that the standard approach of banks of using the same computer system, whichever bank you go to, has to be broken up? The banks should focus more on localised issues, including pension funds such as local government officers’ superannuation funds. They should be encouraged to use locally collected money to benefit local business.

[Lord Popat]

The noble Lord makes a very important point. When I ran an SME I had easy access to my branch manager. To borrow money was not that difficult and the turnaround of applications was very quick. I agree with the noble Lord that we need to focus at regional as well as at local level. What is now happening is that a large number of clearing banks have a central office which does underwriting through computers. I am sure that servicing the customer at a local level will become more important. The good news is that we have brought competition into the banking world. Aldermore, Metro Bank and Cambridge & Counties all have branch managers, so a large number of SMEs can deal directly with the branch manager rather than having an application going to the central level. With the demand for money and banks hungry to lend more, I am sure that, given time, banks will surely set up a branch manager network. That was a successful model in the 1970s and 1980s.