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Friday, 11 February 2011

Hey Big Lender


By Chris Fletcher – Deputy Chief Executive, Greater Manchester Chamber of Commerce

There are certain times when it seems that everything happens at once when it comes to major government announcements regarding key issues that affect business. This last week has been one such time. Set against the backdrop of National Apprenticeship week, with some ongoing strong and supportive noises coming from government and business, there have been two significant initiatives launched by government that we have been raising as major issues on behalf of our members for some time.

The first was the roll out of the results of Project Merlin which was the government’s attempt to curb bankers bonuses whilst getting the banks to lend more to business – SMEs in particular. A real double win if it could be pulled off.

Well, the announcement was made along with suitable noises about bonuses and an increased amount of funds set aside for lending - £190bn of which £76bn will be set aside for SMEs. Backed up by an earlier announcement to increase the bank levy this year by £800m and on the face of it looks like job done. But is it?

Our view and the view of our members is that the headline issue here, i.e. bonuses, acts as a diversion away from the main issue - the willingness and ability of banks to lend money and the availability of good businesses to borrow it. Merlin means that the money should be there if businesses have the appetite to borrow it at current commercial rates (the red flag here is that rates may rise in the not too distant future to damp down inflation) and the banks have more of it – 15% more than 2010 – should they wish to lend it. So, why aren’t we hanging out the bunting?

There is no compulsion on the banks to lend money and to be honest nor should there be. Targets for lending are the first step to the return back to the easy credit bonanza that got us in the mess in the first place. However our members tell us that it is not just access to finance that is the overriding concern, but actually the cost of finance that is the real problem. It is very difficult as we approach nearly two years of having a 0.5% base rate to fully understand the mechanics of why loans are the price they are. The truth is that in many examples it now costs more to borrow money, and when coupled with a drive over the last few years to convert working capital facilities to term loans, you soon understand why many business owners are shrugging their shoulders at what is on offer following this week’s announcements. Put bluntly, it seems to be more of the same which actually results in less – no wonder it’s called ‘Merlin’, that’s a real magical feat.

It seems strange that there is nothing more imaginative on offer to get the money flowing. From my own banking background I know that some propositions are just not workable, but to, in effect, just throw more money at the problem is a bit of a disappointing outcome especially when it just doesn’t seem to be getting through to the front line.

It will be interesting to come back to this over the next 12 months and we will be keeping a very close eye on this issue.

Another issue that we have been doing a great deal of work on, in an attempt to get things moving for our members, is international trade, which was the basis of the second big announcement this week: the release of the government’s white paper on international trade and in particular recommendations on how to solve the very tricky issue of export credit insurance.

Last week I met the MDs of Coface and Euler Hermes, two of the biggest suppliers of trade credit, to discuss how we can begin to ease the conditions to get more businesses in a position to look at exporting as a viable opportunity to grow. This week’s white paper seems to have come up with some good suggestions and over the coming weeks, we’ll be assessing these with various experts as well as taking a delegation of members to London to meet the key officials behind the recommendations.

I will keep you up to speed with this as we are on the verge of making a real change here that has taken some time, a lot of hard work, but most importantly our member’s evidence and input to make the case backed up by our own International Trade Council.

It isn’t quite game over yet. There is still some way to go, so if you have had problems with export credit insurance and want to find out more about our activity please get in touch: sana.nabi@gmchamber.co.uk or 0161 237 4045.

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