Blackfriar: Everybody's talking about it but growth still uncertain

Everyone wants it, but not everyone is sure where it's coming from.

"The inherent balance sheet strength and capital position of Clydesdale and Yorkshire Banks provides a strong platform from which to take advantage of future growth opportunities," said Yorkshire Bank yesterday as it reported a 53 per cent increase in pre-tax profits to 164m.

Chief executive Lynne Peacock insisted her main focus is organic growth, with any acquisitions "the icing on the cake".

So assuming acquisitions are not forthcoming – we saw RBS's 318 surplus branches slip through its fingers earlier this year – growth will have to come from its business banking and mortgage business.

Yorkshire Bank has always insisted it's plain vanilla banking: no sub-prime, low loan-to-value, diminishing commercial property and strong retail deposits.

True to its word, lending for mortgages and trading businesses, its core market, grew by 4.2 per cent and 2.8 per cent respectively over the year.

The bank said it is winning market share, but with a penetration of only about three per cent in the SME sector, and a two per cent share of deposits, there is plenty of scope to grow further.

In uncertain times, people revert to brands they know and trust, and Yorkshire Bank hopes to capitalise on this.

Not a day goes by without a company complaining about lack of support from the UK's big banks. Now is Yorkshire Bank's chance to offer the SME sector a real alternative to its high street rivals.

Growth, as the Prime Minister and Business Secretary admitted earlier this week, will have to come from businesses.

With an 81bn deficit to be cut over four years, the Government is busy shrinking the public sector.

On Monday, before an audience of business leaders at the Confederation of Business and Industry's annual conference, David Cameron promised to create a "new economic dynamism". "Together we can make the years ahead the most entrepreneurial and dynamic in our country's history," he said with a flourish.

Vince Cable was rather more sobering. Government can help by promoting key industries, supporting research and "airing concerns" of big businesses. But this is broadly the limit of its power.

"Beyond that, the Government has very limited scope to promote through fiscal stimulus," said Mr Cable. "With private consumers so debt-laden, growth will have to come from the business sector and overseas trade."

"We will do our bit," added Mr Cable. "I trust business will deliver."

Except, as Jim Ratcliffe, chief executive of chemicals giant Ineos explained, it's not that easy. Creating this "economic dynamism" requires more than just good intentions from Government. It needs a banking system that recognises business talent and potential and is prepared to take risks by backing growth industries.

Ineos, a $40bn turnover company, is one of the manufacturing success stories of the past decade.

But when it was hit by a fall in demand during the recession – thanks in no small part to the "disastrous management" of some banks – its interest rate was trebled and amortisation rate doubled.

"(That is) a significant penalty for the manufacturing sector and a significant reward for the financial sector," said Mr Ratcliffe. "That just does not seem right."

He was asked whether he thought it would be possible to replicate Ineos's growth in today's environment.

"My simple answer would be no," said Mr Ratcliffe.

Debt funding is just not available, and the industrial sector needs cash. "There is a risk that the baby of industrial growth is being washed away with the sub-prime bathwater," he said.

If the private sector is to pick up the slack from the shrinking public sector, it needs all the help it can get to fund this growth.