Review of 2012, and forecast for 2013
Review of 2012 and forecast for 2013 for SME’s
As I look back on 2012, I can see several events in the banking world that historians will write about for years to come and which will be seen as landmarks in the development of economy. Sadly, ‘12 has not seen any improvement at all in the banks’ attitude to towards the SME community.
During the year we have seen the PPI mis-selling issue explode and result in huge provisions and bad press, we have seen record fines for various Banks, the latest being a $1.9bn fine for HSBC for money laundering, and the LIBOR issue which rumbles on and has caused world wide ripples. Recently, and most significantly for SME’s, we have seen early signs of another potentially serious mis-selling scandal - swaps. The name, swaps, is potentially misleading as it refers to almost any interest rate, or FX derivative. There is emerging evidence that the banks have acted inappropriately when selling to their less complex, smaller, SME clients. As a result the Banks are now having to make provisions for refunds which could run into tens of millions of pounds.
In addition to these issues, the banks are also having to cope with Basel II and shortly Basel III which will require them to retain far greater levels of liquid cash on their balance sheets to cope with various ‘doomsday’ scenarios.
The upshot of these issues, and uncertainty in the economy, has meant that the banks are still avoiding what they regard as high risk lending. The Banks have almost completely lost whatever goodwill they had with their SME customers, almost all of whom tell me sad stories of loans declined and overdrafts withdrawn.
The Banks unwillingness, or inability, to lend has created a gap. This gap is being filled, to some extent, by investors who are willing to use their cash, on which the banks are paying virtually nothing, to lend to good, profitable, small businesses, bypassing the normal banking systems completely. This year has seen a huge increase in what has now been called ‘peer-to-peer’ lending, the undoubted leader in which is https://www.fundingcircle.com .
Looking forward to 2013 I think the SME sector has some real challenges – The growth of the Chinese and Indian economies is slowing. This is worrying as they are now undoubtedly the engines of world growth. The UK is forecast to lose it’s AAA credit rating which will make our government borrowing more expensive and could therefore suck cash out of the government coffers which might otherwise be used on infrastructure investment.
My view is that banks will continue to act for the foreseeable future as they have for the last couple of years. This means that the importance of peer-to-peer lending will grow and grow, and may become a permanent and meaningful element of the economy for SME’s.
As I write this, peer-to-peer lending is not regulated and as such anyone using it needs to be mindful that there are some excellent p2p lenders out there, but there are also some that are not so good. My advice is always to seek the help and advice of a professional who can guide you through the process.
Hawkmoor Associates Limited
This was posted in Bdaily's Members' News section by Phil Dibbs .
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