THE appeal of the Bank of England’s Funding for Lending Scheme to banks and building societies is not hard to fathom.
Nor is the need for a scheme which will lubricate the wheels of British lending and get credit flowing to businesses. Whether the FLS alone is the vehicle to achieve this is another matter.
Lenders large and small have clamoured to join the FLS, which offers them cheap credit in return for boosting lending and cutting the cost of loans. Lloyds has drawn down £1bn, and Leeds and Yorkshire building societies also plan to access it.
But yesterday’s Credit Conditions Survey by the BoE found while the scheme is boosting availability of mortgages, it has yet to help businesses. Lenders said there has been no change in credit to businesses over the past three months, nor do they expect much demand to follow.
The FLS, while a useful tool to cut the cost of mortgages, cannot force debt-averse firms to borrow, nor make risk-averse lenders sign off all business loan applications.
That’s why the small business bank proposed by the Coalition cannot come soon enough.
“It is of course premature to judge from this survey just how effective the Funding for Lending Scheme is likely to be as it is only in its infancy,” said IHS Global Insight economist Howard Archer.
“But the immediate concern is that banks will remain very cautious about lending to smaller businesses in the current difficult and uncertain environment. This supports the case for getting the planned state-backed business bank to fund small and medium-sized businesses up and running as soon as possible.”
Details on the bank are scarce, but £1bn has been pledged by Government, with a similar sum hoped for from the private sector.
The bank will be overtly political, but British banking has been that way for the past five years. It will take time to start from scratch, and taxpayers may baulk at risking their money on speculative start-ups.
But that’s a risk worth taking if it encourages entrepreneurs and gets small firms to invest. Together, the FLS and the business bank could be the tools to breathe life into the UK’s suffocated credit market.
At a time when traditional high street banks are suffering from dismal satisfaction levels, the entrance of a new player with the customer satisfaction scores that Marks & Spencer inspires sounds like the kick up the backside the banking sector needs.
According to a Which? customer satisfaction survey out earlier this month all the major high street banks are doing badly. Santander and Halifax are in the bottom two places in the latest Which? analysis of customer satisfaction ratings of 30 financial brands, scoring 46 per cent and 48 per cent respectively, well below the average score of 62 per cent.
Which? said: “Bank of Scotland (49 per cent), RBS (50 per cent), Lloyds (51 per cent), Barclays (54 per cent), Natwest (56 per cent) and HSBC (60 per cent) all perform poorly too.
“However, these banks dominate high-street banking, accounting for more than 80 per cent of the current account market.” Richard Lloyd, Which? executive director, said: “Consumers are constantly being let down when it comes to customer service. This is not good enough.”
So the entrance of M&S with all guns blazing looks like a seismic shift. As long as you’re a devoted M&S customer, you will easily gain more benefits than the £15 to £20 a month cost.
The M&S premium current account carries fees of up to £240 a year in return for over £500 worth of annual benefits.
According to Michael Ossei, personal finance expert at uSwitch.com, eight in ten consumers say they would consider switching to a new provider and a third say they’d like to bank with a company that offers other useful services such as grocery shopping.
“M&S is perfectly placed to take on the high street banks,” he said.
“With a good heritage and fiercely loyal customers, M&S will hopefully build on its great brand values to bring trust to at least some of the banking sector. With the account rewarding loyalty, there are even better benefits for those who shop with M&S regularly and perhaps hold an M&S credit card.”
But a price tag of between £180 and £240 a year will prove too steep for many people.
“Although M&S Bank claims the benefits are worth over £500, the perks are very much geared towards existing M&S customers,” warned Mr Ossei.
“If you don’t shop regularly with them, you won’t make best use of the benefits and could end up over-paying for your account.”
While M&S’s launch into the banking sector may only attract a small percentage of current account holders, you can be sure the big supermarkets are watching it very closely.
It is only a matter of time before Tesco, Asda, Sainsbury’s and Morrisons wade in and when that happens the traditional banks are in for a hiding.