The Treasury Select Committee has last week published its latest report into SME finance which considers both the current levels of borrowing, future projections and a consideration of the variety of misconduct issues that have been discovered over the past decade following the financial crash.
At the moment, it is believed that SMEs suffer from an “unwillingness to apply for finance”, and in some cases, are poorly informed of the options available to them. In particular, it is highlighted that in spite of the general economic recovery that has occurred since 2008, the level of lending to SMEs “remains lower than before the financial crisis”.
Although the shift could to some extent be explained by the change in attitude from banks who in general face stricter rules such as maintaining higher capital reserves. Although the report also acknowledges that a bank’s commercial risk attitude is a relevant consideration, there remains the issue of the trust lost in the banking industry.
The report makes clear that a “healthy SME banking relationship is dependent on mutual trust”. For many that have been affected by past misconduct issues, it is impossible to consider the issue of finance without also considering the issues that have faced SMEs and perhaps informed their current views on lending. This has ranged from the mis-selling of interest rate hedging products that worked against businesses following the reductions in base rate interest, to the allegations of the Royal Bank of Scotland’s Global Restructuring Group (GRG), having engineered the failure of businesses to generate income.
In relation to GRG, one of the key issues highlighted in the report is that following the closure of the department and implementation of the new “Restructuring” team, it was revealed that of the 182 employees, some 136 had worked in GRG. This included 30 out of 32 employees regarded as being at senior management level.
This, of course, raises concerns as to how much the culture of the bank could have changed with the report noting that “it is widely acknowledged that an organisation’s culture is strongly guided by the “tone from the top”. Given that the majority of the department is run by the same individuals accused of previously carrying out misconduct, there are fears that the new department is effectively another scandal waiting to happen.
In order to address the above, it has been suggested that commercial lending, like that obtained by SMEs, should be brought within the regulatory framework to better protect customers. This framework, however, would need to be addressed by the government which is likely to cause some delay before any meaningful change can be brought about.
If you have been affected by any form of bank misconduct either personally or as part of your business account, then Seneca Banking Consultants are here to help. Please feel free to get in touch for a no obligation chat on 01204 322 804.