After a long period of booming years the recession hit and the hangover just won’t shift.
For 2014, the Forum of Private Business thought long and hard whether to make a new year’s resolution to start being nicer to banks. After all, our members need them more than most businesses and with all the optimistic talk of better economic conditions in 2014, far be it from us to put a downer on the wider cheer.
Yet in 2014 we are going to see a further stream of damaging bank revelations. Some are the result of lag times from last year’s revelations whilst others are fresh issues, but together they will continue to negatively impact upon the banking sector. So, with due homage to Donald Rumsfeld, here’s the banking calendar for 2014.
The Known Knowns
There will be four sets of authoritative lending figures produced by the Bank of England and four reports from the SME Finance Monitor. With the government now skewing Funding for Lending money towards small business lending rather than mortgage lending we should see a much better set of figures. The problem remains that this additional lending to SMEs will be masked, firstly by businesses paying back more than they are borrowing and secondly by some of the larger banks continuing to get rid of bad debt from their balance sheets. Also, with Begbies Traynor estimating up to 400,000 businesses could go under if interest rates are raised by even a small amount, the problem for banks of how to handle companies with poor balance sheets is a significant challenge.
There will be more bad news around bank branch closures. The Treasury Select Committee is currently looking into the planned sale of more than 600 bank branches by Lloyds Banking Group – Project Verde – a sale required by European competition authorities but which fell through to the Co-operative Bank last year. On the face of it is a sizeable opportunity to boost competition on the high street. However, whilst the inquiry may well be damning on how the process to sell the branches got so far before it fell through last year, the wider issue of branches closures remains critical. An independent study into a natural shared branch model has not yet taken place, despite two recommendations for it to do so from the Treasury Committee in 2006 and 2011. Small businesses are disadvantaged by this decline as the local spend of communities moves to larger areas where cash can be withdrawn. This isn’t the case in all banks. Handelsbanken for example adopts the slogan ‘the branch is the bank’ whilst Metro Bank intends to increase its branches to 200 by 2020.
The Known Unknowns
At end of 2013 Government Entrepreneur in Residence Lawrence Tomlinson released a damning report suggesting that some banks – one in particular – were artificially stressing small businesses in order to put them into a restructuring arm that was move lucrative to the bank. These were historic claims from the immediate aftermath of the financial crisis. In February, the independent inquiry into these allegations will conclude, as will the investigation by Clifford Chance into comments made by Mr Tomlinson. If an iota of the allegations made in the report is true then RBS will face some tough questions.
Secondly, at some point in 2014 the banks will be revealing compensation levels to small businesses affected by the mis-selling of interest rate swaps. Before Christmas the Financial Conduct Authority suggested that 60,000 small businesses could have been mis-sold interest rate hedging swaps and more worryingly, that some were continuing to sell such products due to a legal loophole.
The Unknown Unknowns
The last four years have brought us LIBOR manipulation, interest rate swaps, PPI, the potential artificially stressing of businesses and drug revelations of Chief Executives. Are there other scandals out there? Almost certainly yes. The problem is each reduces confidence in the banking sector at a time when we need businesses to trust it. The Barclays Chief Executive said recently that banks will not fully regain trust for up to 10 years, and that’s without any new revelations that might come out in this or future years.
The constant stream of bad news stories disincentivises borrowing. That is not the fault of newspapers and other stakeholders but the fault of banks themselves. If a business doesn’t want bad publicity it needs to stop doing underhand things. It is as simple as that.
However, let’s end on a bit of optimism. For many banks, 2014 is a fresh start to try and woo new business customers.
RBS has commissioned a new survey to either show, or show how far there is to go, for it to be considered as the most business-friendly bank. The first results might be a shock to the system but will provide a benchmark for improvement in the future. And there are many good, challenger banks doing great things for small businesses; Handelsbanken, Aldermore, Shawbrook, Metro bank and others are shaking up the market.
2014 could be the year challenger banks really take off. Changes at the end of 2013 to make account switching quicker and easier, together with the launch of Tesco Bank this year will see greater competition in the marketplace. If the government follows through with suggestions that credit data may be forced to be shared with challenger banks then we could be in for a minor revolution.
