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BBA says demand for credit ‘sluggish’, but SME credit complaints rise

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  • 24/08/2010
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The bank lending figures out today confirm lending is still weak to non-financial companies, which the British Banker's Association said was the result of ‘sluggish demand.'

However, complaints about banks from businesses rose 119% in the last 12 months, according to Financial Ombudsman figures, which new bank Aldermore said is probably just the “tip of the iceberg.”

The BBA said UK companies are largely repaying loans, but, Aldermore said that the figures prove that there is rapidly growing discontent amongst small businesses over their treatment by the big banks.

Figures show 496 complaints were made to the Financial Ombudsman (FOS) by small businesses about their bank loans or overdrafts over the last year to March compared to 226 complaints in the previous twelve months.

Many more may be struggling to get credit said Aldermore, because only businesses with an annual turnover of less than €2 million euros – or roughly £1.8 million – and fewer than ten employees can complain to the FOS.

Phillip Monks, CEO of Aldermore said: “Small businesses that we talk to actually feel betrayed when their business is running fine but the bank still decides they are not going to renew their loan facility.”

“Another complaint we hear from companies is that the bank is going to renew their loan facility but only if they pay a huge arrangement fee – a fee they were never asked for when they first took the loan out.”

Monks said some banks do this knowing the customer might be too worried to shop around.

“The big banks aren’t happy to admit that their balance sheets are under strain and they are having to knock back perfectly good customers,” he added.

The data obtained by Aldermore also showed the number of complaints made against all financial services providers by SMEs has rocketed by 43% in the last 12 months from 3252 in 2008/09 to 4656 in 2009/10 to March 31 2010.

Complaints from small businesses rose at a far faster rate than complaints by consumers which rose by 27%, from 124,219 in 2008/09 to 158,356 in 2009/10.

Monks said: “Small businesses have been let down by the big financial institutions. They have never been that well served but these figures show that the banking crisis has led to them getting an even rawer deal.”

A BBA spokesman said there was no question that banks sometimes get it wrong, but added that one complaint for every 8000 customers was not a bad record.

“Banks have to hold a high level of capital to support their lending. They can either raise funds for lending to businesses from deposits from customers or in the money markets, but they’ll need to match shorter term deposits against longer term lending to business. Add to this the risk involved in any kind of lending situation, the possibility of bad debt and administration costs, and it all builds up the cost of funds to the bank,” he said.

“Some banks will offset that cost with an arrangement fee,” he added.

The spokesman said small businesses are naturally optimistic about their own firm’s prospects, whereas banks need to see repayment plans and evidence.

“Banks want to see firms have done their homework and it may help if firms take along their own financial advisers or seek help from a support service like Businesslink to support their case,” he said.

Lending to non-financial companies has fallen by 5.2% over the past year as
reduced lending in some sectors was offset by improvements elsewhere, according to BBA figures.

Gross mortgage lending of £8.4bn in July was slightly below the average of the previous six months. Figures show lending to homebuyers declined slightly in July, with the average value of house purchase approvals also fell slightly to £148,500.

The number of remortgaging and equity withdrawal approvals held steady at similar levels to the previous six month’s lending average.

 

 

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