Businesses condemn UK banks for being slow to lend emergency funds
Business groups rounded on the UK government’s flagship lending programme for small and medium-sized companies after a report showed banks extended just £1.45bn of rescue finance in the past week.
The figure is double that of the previous week, UK Finance, the banking industry trade association, said on Thursday in a statement. The result is nevertheless stoking frustration that it is taking far too long for the Coronavirus Business Interruption Loan Scheme (CBILS) to give businesses the help they need to stave off bankruptcy. The Confederation of British Industry is among lobby groups warning of the slow pace.
Mel Stride, chair of parliament’s treasury committee, said the panel will call bank executives to discuss their progress with the programme. He also directed UK Finance and the British Business Bank, the stateowned body administering the rescue programmes, to produce daily data showing loan approvals and other metrics.
“Given that in the circumstances, time is of the essence. It is imperative that there is full and rapid clarity on how the schemes are progressing,” Stride wrote in a letter on Wednesday to lenders participating in CBILS. So far the programme has lent a total of £2.8bn.
Since its launch on March 23, CBILS has come under fire for being too reliant on traditional underwriting practices as companies watch revenues dry up during the country’s lockdown.
Representatives of the industry have said they’re working as fast as they can in extraordinary circumstances and must do credit appraisals even with the government guaranteeing 80% of the loans.
From the day the CBILS was launched, small-business experts have warned that banks will insist on using timeconsuming underwriting practices to process loans because they carry 20% of the risk in a pandemic. Many officials say the industry has a responsibility to step up in this crisis after having been rescued by taxpayers during the 2008 crash.
“Banks can this time around be part of the solution rather than part of the problem,” Alex Brazier, executive director for financial stability strategy and risk at the Bank of England, said on a webinar with the Confederation of British Industry on Thursday.
“It’s very important therefore that the banks — and I think they do realise this — kind of lean into this crisis, rather than step back from it. They’ve got the capital, they’ve got the funding, they’ve got the state guarantees.”
Still, other influential voices such as Andy Haldane, the Bank of England’s chief economist, have floated the idea of the state guaranteeing 100% of the loans to speed up the process. Chancellor of the exchequer Rishi Sunak has resisted overhauling the programme.
On Thursday, Mike Cherry, the national chair of the Federation of Small Businesses trade association, renewed his call for big changes to the CBILS. “The government should up its guarantee on emergency loans with values under £30,000 from 80% to 100%, ” he said. “That, combined with a streamlined application process, should help to get more cash to the small firms that really need it.”
The Institute of Directors highlighted the “swathes” of businesses that have been unable to secure finance, while the confederation expressed concern about the impact of the programme’s slow progress on the labour market.
“While the pace is picking up, many firms are still missing out,” Rain Newton-Smith, the business lobby’s chief economist, said. “More loans need to get out the door faster for the businesses facing distress. Saving jobs now will be far more costeffective in the end than trying to place lost jobs.”
But with just 16,600 loans provided, officials are becoming increasingly anxious that the programme is not delivering results as quickly as similar efforts in other countries.
Small and medium-sized businesses account for 60% of the private sector workforce and contribute 50% of the UK’s GDP. Their survival will be crucial in determining the severity and duration of a recession, according to the Bank of England.
Andrew Bailey, the central bank’s governor, urged banks last week to intensify their efforts in making sure government-supported loans reached businesses. Failure to get money out to them fast enough could lead to economic “scarring” that stalls a recovery, he said.