Credit where it’s due … but banks can do more

The Herald Business - - Straight Talking - IAN MCCON­NELL

AS Scot­land has basked in the un­ex­pected sum­mer heat, there have been some lon­gover­due signs of a thaw­ing of the fund­ing cli­mate. A s ur vey pub­lished by the As­so­ci­a­tion of Char­tered Cer­ti­fied Ac­coun­tants (ACCA) at the end of last month showed that fi­nance pro­fes­sion­als work­ing for busi­nesses in Scot­land had seen a sec­ond con­sec­u­tive quar­ter of im­prov­ing ac­cess to growth cap­i­tal.

They also re­ported a re­bound in busi­ness op­por­tu­ni­ties in the first half of 2013, a wel­come de­vel­op­ment given th­ese had fallen through­out 2012.

The ACCA, in this lat­est global eco­nomic con­di­tions sur­vey, notes that im­proved ac­cess to growth cap­i­tal was re­ported in most parts of the world. And it at­tributes the im­prove­ment in large part to the “global bar­rage of mone­tary stim­u­lus”.

What­ever the rea­sons, the find­ing that growth cap­i­tal is be­com­ing eas­ier to ac­cess north of the Bor­der is a wel­come sign in­deed for the Scot­tish econ­omy.

It is im­por­tant to re­mem­ber that this im­prove­ment is com­ing from a low base, and against a back­drop of tough eco­nomic con­di­tions. But at least there are signs that the di­rec­tion of travel in terms of avail­abil­ity of growth cap­i­tal is the right one.

The ACCA sur­vey fol­lowed some pos­i­tive find­ings from the Fed­er­a­tion of Small Busi­nesses’ lat­est check on the for­tunes of its mem­bers north of the Bor­der.

The FSB’s lat­est Voice of Small Busi­ness re­port, cov­er­ing the sec­ond quar­ter, showed con­fi­dence among small firms in Scot­land had climbed to its high­est level for more than a year and sig­nalled a mar­ginal im­prove­ment in the lend­ing cli­mate.

How­ever, the fig­ures from the sur­vey show the lend­ing cli­mate for small firms in Scot­land re­mains ex­tremely dif­fi­cult, in spite of the quar­terly im­prove­ment.

While the pro­por­tion of firms find­ing credit avail­abil­ity poor fell dur­ing the sec­ond quar­ter to its low­est since the FSB started col­lect­ing data on this is­sue in the


open­ing three months of 2012, it only dropped as far as 69.4%.

The pro­por­tion of firms find­ing credit un­af­ford­able also fell in the sec­ond quar­ter, but only as far as 55.9%.

Again, it is wel­come that the fig­ures moved in the right di­rec­tion in the sec­ond quar­ter. How­ever, the high per­cent­ages con­tin­u­ing to be­lieve that credit is dif­fi­cult to ob­tain and too ex­pen­sive are a sig­nif­i­cant worry in terms of the eco­nomic out­look.

And, while re­cent eco­nomic in­di­ca­tors have been bet­ter, and this is a re­lief, we should not lose sight of just how far the UK is from its peak in out­put ahead of the Great Re­ces­sion of 2008/09. And we should not un­der­es­ti­mate the ex­tent to which the Coali­tion Govern­ment’s aus­ter­ity pro­gramme is likely to dampen ac­tiv­ity in the years ahead.

Of­fi­cial fig­ures pub­lished late last month showed that UK eco­nomic out­put grew by 0.6% in the sec­ond quar­ter – bang in line with City forecasts . But sec­ond-quar­ter UK gross do­mes­tic prod­uct was nev­er­the­less 3.3% adrift of its pre-Great Re­ces­sion peak.

The Bri­tish Bankers’ As­so­ci­a­tion’s (BBA) first fig­ures on lend­ing to small and medium-sized en­ter­prises by post­code, pub­lished late last month, had pos­i­tives and neg­a­tives from a Scot­tish per­spec­tive.

The good news in them was that the 0.8% drop in out­stand­ing lend­ing by banks to small and medium-sized en­ter­prises in Scot­land in 2012 was much less steep than a 4.3% de­cline in Great Bri­tain as a whole.

The bad news was that lend­ing to SMEs in Scot­land de­clined, with the 0.8% fall equat­ing to a not-in­signif­i­cant £62 mil­lion drop.

Jeremy Peat, di­rec­tor of the Ed­in­burgh­based David Hume In­sti­tute eco­nomic think-tank, wel­comed Scot­land’s out­per­for­mance of other parts of Great Bri­tain in th­ese 2012 lend­ing fig­ures. How­ever, he high­lighted the lack of pick-up in in­vest­ment by com­pa­nies across the UK as “one of the great­est dis­ap­point­ments” in terms of the cur­rent eco­nomic pic­ture.

The BBA, mean­while, re­ported late last month that lend­ing to pri­vate non-fi­nan­cial busi­nesses of all sizes in the UK rose by a mod­est net £172m in June, the first in­crease since Jan­uary and only the sec­ond rise in eight months.

But this rise fol­lowed a net fall of £2.732 bil­lion in May. And there was an aver­age monthly net drop of £1.644bn over the six months prior to June.

The de­bate goes on be­tween busi­nesses and banks about the ex­tent to which the down­ward trend in out­stand­ing lend­ing in re­cent times is down to weaker de­mand, with many firms want­ing to pay down debt and/or wary about in­vest­ing, and the de­gree to which it is the re­sult of banks’ re­luc­tance to lend.

Signs that the fund­ing cli­mate might be thaw­ing a bit come as a re­lief, but more ev­i­dence will be re­quired to de­ter­mine whether or not the sit­u­a­tion re­ally is on the turn in a mean­ing­ful and sus­tained way.

What is for sure is that banks can still do much more to make credit avail­able at af­ford­able rates, and that many busi­nesses will take some more per­suad­ing about the out­look for the UK econ­omy be­fore they will be con­fi­dent enough to in­vest.

Jeremy Peat has wel­comed Scot­land’s lend­ing per­for­mance but high­lighted a re­luc­tance, or in­abil­ity, to in­vest as a ma­jor prob­lem

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