UK banks carry on stumbling from one crisis to the next. Loss-making RBS, which we all own, perversely persists in showering staff from a seemingly bottomless pit of bonuses. HSBC’s Mexican and US arms are alleged to have laundered cash for Mexican drug cartels (perhaps a diversification hint for timber companies struggling to get a loan). Then we have Barclays ex-boss Bob Diamond, whose sole unswerving defender is his tweenage tweeting daughter.
If all the above wasn’t enough, there is also the central criticism of banks; that they are not fulfilling their fundamental role, which by their own admission, is to fund British business and
enable it to trade, invest and grow.
Post crunch they’ve focused on licking their own fiscal wounds and rebuilding their depleted capital resources. The government, of course, pressured them to do this, but within reason and not to the detriment of lending to companies and, indeed consumers. So last year Project Merlin was launched, which pledged banks to loosen the purse strings and make business credit more accessible and affordable.
Eighteen months on, our straw poll of timber traders won’t make comfortable reading for the politicians and bank bosses who predicted Merlin would work magic.
A couple of traders say the situation has eased, both from their own perspective and that of their customers. They’ve accessed all the cash they’ve needed and report fewer customer credit complaints and issues. Others don’t take such a rosy view. Even two of the UK’s biggest timber traders said they had found it tougher to secure funding. They had raised the cash they needed, but faced more stringent conditions than before.
These companies’ customers, particularly the small to medium-sized enterprises that are the backbone of the UK timber trade, were finding banks more demanding still. Some had had credit withdrawn entirely, prompting our poll respondents to repeat the view that some banks and credit insurers had pulled out of construction and related sectors entirely as just too high risk in the current market.
The result of this is that the suppliers often had to act as their customers’ bankers themselves, involving a lot more leg work for everyone. One company said 20% of its customers had no credit cover. Another that, while it carefully scrutinised the books of customers without cover, it still had to take a punt in some instances and, if it had been more risk averse, its own business would have suffered more than it has.
In response, the banks say they are focusing more on lending to SMEs, although also claim that, in the current climate, many smaller businesses are wary of borrowing at all.
They are also putting forward less widely used and new forms of funding, including asset finance, as a way of raising capital in a difficult market. Brokers also say they can bridge the gap between SMEs and the bigger financial institutions.
The big bank-backed Business Growth Fund may provide another option for companies with turnover above £5m.
Interestingly, banks are also placing greater emphasis on clients’ environmental credentials. This could increasingly mean yet another thing to prove in securing funding, but ultimately could play in favour of sustainable industries, including timber.
If some readers at this point suspect they can hear the flutter of porcine wings, you may
be right. Only time will tell.
