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Banks urged to give more help to small firms
BANKS need to do more to boost their balance sheets and increase the flow of credit to small firms, leading Yorkshire business figures said despite a new report showing Britain's financial sector had stabilised.
The health of the sector has improved over the last six months, the
Bank of England said yesterday as one of its senior figures argued that departures might be a "price worth paying" for tougher rules.
The financial stability report, published twice a year by the Bank, said banks had benefited from a remarkable rise in asset prices over the past nine months and were finding it easier to raise capital.
Howard Kew, chief executive of Financial Leeds, said: "This is encouraging news but the banks still have further adjustment to make to improve their balance sheets and it's going to take time. We hope it means that liquidity for good businesses will continue to improve and the recovery will be maintained steadily."
Ian Williams, director of policy at Leeds, York and North Yorkshire Chamber of Commerce, said: "It is good to hear the banks are in a better state than they were, however some of this can be attributed to the financial stimulus packages that the Government has introduced, but such packages cannot carry on indefinitely.
"Therefore it is clear that the banks need to tackle the root cause of the recent financial crisis in sufficient time so that they can operate without significant Government support."
Yesterday Andy Haldane, the Bank's executive director for financial stability, struck a hawkish note when he raised the prospect of departures from the the City. "Some of the downsides of carrying around a big financial system are now evident to all. If some of that were to migrate overseas that would be unfortunate but given the costs of carrying the financial system around, it may be a price worth paying," he added.
The Government has imposed a one-off 50 per cent tax on bank bonuses this year in an effort to rein in hefty payouts by the bailed out banks. Banks and brokerages have complained about this and some have threatened to move parts of their business abroad.
The Bank of England said the extraordinary policy stimulus could not last forever and that banks needed to do more to reduce the mismatch between long-term assets and short-term funding.
British banks need to refinance more than 1 trillion of wholesale funding over the next five years, something the central bank said would be a challenge in the absence of stronger capital positions.
"Banks need to reduce leverage further, extend the maturity of their funding and refinance substantial sums as official sector support is withdrawn," the Bank said.
The BoE said the adjustment from the financial crisis would be prolonged, with both banks and households needing to get their balance sheets back in order. Banks will face higher capital requirements on trading assets and securitisations from 2011 – of about 33bn based on Financial Stability Authority estimates.
Household debt could also become more problematic once interest rates began to normalise. Household income gearing would return to levels last seen in the early 1990s if Bank Rate were to return to five per cent.
"Given their balance sheet vulnerabilities, banks remain exposed to any future deterioration in macroeconomic and market conditions, which could substantially raise the cost of funding and capital raising in the future," the BoE said.
Lending suffers 4.8bn slump
Business lending slid by 4.8bn in October and loan growth fell to a record low, the Bank of England said.
Its Trends In Lending report said the level of loans to firms was 7.6 per cent below last year during October – the worst since its records began in 1999 and the ninth successive month of year-on-year decline.
The gloom comes despite record low interest rates and 200bn efforts to boost the money supply through quantitative easing, although firms are also clearing debts built before the recession.
Net lending remained "subdued" in November, the Bank added. Lending has been hit by the sudden exit of overseas banks from the UK market.
Major UK lenders predict demand for loans will remain "subdued" throughout 2010, although loan availability should improve and borrowing costs decline.
Ian Williams, director of policy at Leeds York and North Yorkshire Chamber of Commerce, said: "Access to finance remains a critical obstacle to a much-needed revival in investment."
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Weather for Yorkshire
Wednesday 23 May 2012
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