By Rachel Williams
Intelligent Finance’s latest delay to its launch date has ignited speculation that there may be deeper problems with the internet bank’s proposition than it is prepared to admit.
While the bank puts the delay down to technical glitches, some have suggested that the way in which it will run its offsetting products could prevent it from meeting capital adequacy directives laid down by the FSA.
Bob Pannell, chief economist at the CML, said that according to the rules, banks must hold certain levels of capital against their assets. He said: “8% capital has to be set against lending with a 100% risk weighting. But some loans, such as mortgages have a preferential risk weighting of 50% because they are secured, so of that 8% capital only 4% must be left in reserve.”
This means that banks have to have twice as much capital in reserve on unsecured loans and credit cards than they do for mortgages.
IF is the first bank to offer an offset facility on credit cards and personal loans as well as mortgages. This means that while the bank has to hold the level of capital reserve required for unsecured lending, it is only receiving interest on these loans at its lowest rate – in other words its mortgage rate.
As a result several industry players have suggested that IF may not have the necessary income to maintain the required capital adequacy ratio. Off the record, they believe this will be compounded by IF’s management of its balance sheet. Typical current account providers will shrink their balance sheet by combining the mortgage with the current and deposit accounts. As this reduces the size of the mortgage debt the bank will have to put less capital reserves in place.
However, because IF intends to keep the current account and the mortgage separate it will have to pay the maximum in capital reserves on the mortgage asset and maintain full capital support in respect of unsecured loans and credit cards.
IF, however, has denied that this is behind its continued delay. Jennifer Blackwood, senior press officer at IF, said: “The delay has nothing to do with our calculations. Our problem is purely a volume issue.”
The online bank, backed by the Halifax has not set a firm launch date following its failure to meet its original date of 14 July, and then failing to meet its second target in August.
Blackwood said: “The delay originally came about due to problems with capacity on our systems. It slowed down when a large amount of people were on the system.”
She added that because the launch fell through just four days before it was due to go live, IF was not prepared to specify a new launch date.
“We said we would launch in July and we did not make it, then we said we would launch in August but did not, so we cannot say when we will launch – but it will be soon.”
