UK banks pre­pare busi­nesses for po­ten­tial cash crunch af­ter Brexit

The Gulf Today - Business - - INTERNATIONAL -

LON­DON: Banks in Bri­tain are try­ing to pre­pare busi­nesses for a po­ten­tial cash crunch af­ter Brexit, whether or not a deal agreed by the UK and Brus­sels this week­end is ap­proved by par­lia­ment next month.

Banks fear Bri­tain’s de­par­ture from the Euro­pean Union could cause a spike in bad loans with cor­po­rate clients, if it leads to de­lays in cross-bor­der ship­ments and pay­ments or big swings in ster­ling.

To pro­tect against these risks some banks are ex­tend­ing credit early to com­pa­nies and sell­ing in­sur­ance against volatil­ity in ster­ling.

State-con­trolled Royal Bank of Scot­land tre­bled its “growth fund” for small busi­nesses last month from 1 bil­lion to 3 bil­lion pounds ($3.86 bil­lion), say­ing it had set aside ex­tra cash to help cus­tomers to get through Brexit.

It said it may need to top up the pot again. “To a large ex­tent it de­pends on the type of Brexit we get,” Mike Slevin, head of cap­i­tal man­age­ment at the bank, told Reuters.

It has iden­ti­fied nearly 2,000 at-risk com­pa­nies across sev­eral sec­tors it be­lieves are ex­posed to a Brexit fall­out.

These in­clude those re­liant on com­plex over­seas sup­ply chains such as car part man­u­fac­tur­ers and medicine mak­ers — and those sus­cep­ti­ble to an eco­nomic down­turn — such as leisure and con­struc­tion.

WORK­ING CAP­I­TAL

Credit be­ing of­fered by RBS in­cludes in­creased im­port and ex­port fund­ing, sup­ply chain fi­nance and big­ger work­ing cap­i­tal lines for ev­ery­day op­er­a­tions, Slevin said. It is log­ging where credit is taken up due to Brexit to track the im­pact.

But take-up has been slow so far and small firms are not as pre­pared as they ought to be, Slevin said.

“Many want to hold back from in­creas­ing lines un­til a lit­tle closer to the time be­cause of the cost. So it’s a slow burn.”

CYBG - which owns the Cly­des­dale, York­shire and Vir­gin Money brands - has also been con­tact­ing busi­nesses to of­fer credit, in­clud­ing farm­ers across York­shire and Scot­land that ac­count for a sig­nif­i­cant chunk of its busi­ness loan book.

Bri­tish farm­ers are re­liant on sup­port pay­ments from the EU, and while these are guar­an­teed by the Bri­tish gov­ern­ment for up to three years af­ter it leaves the EU in March next year, the FTSE 250 lender wants to smooth any bumps in the road.

“We have worked with a good num­ber of our cus­tomers in agri­cul­ture. We are mak­ing sure they are fi­nan­cially ready,? CYBG chief fi­nan­cial of­fi­cer Ian Smith told Reuters.

Sil­i­con Val­ley Bank, a Us-based lender fo­cused on the tech­nol­ogy sec­tor, has in re­cent months sold a large num­ber of cur­rency hedges to start-up com­pa­nies in Bri­tain ex­posed to fluc­tu­a­tions in the ster­ling/dol­lar ex­change rate.

“A num­ber of our clients have raised fund­ing in dol­lars with US in­vestors but have costs largely in ster­ling, so they’ve been en­ter­ing into for­ward con­tracts to lock in rates,” said Phil Cox, head of EMEA for the bank.

The ma­jor­ity view among tech firms is that a Brexit deal will be fi­nalised, he said, trig­ger­ing a rally in the pound that would leave clients with un­hedged dol­lar po­si­tions vul­ner­a­ble.

Some Bri­tish com­pa­nies have also been tak­ing ac­tion to pro­tect against po­ten­tial Brexit dis­rup­tion.

These in­clude Mr Ki­pling cakes baker Pre­mier Foods, in­dus­trial prod­ucts group Elec­tro­com­po­nents and on­line white goods seller AO World.

Tile re­tailer Topps Tiles said on Tues­day it was also in­creas­ing in­ven­to­ries of some prod­ucts in prepa­ra­tion for any sup­ply prob­lems. The com­pany de­clined to com­ment on whether it had asked its banks to ex­tend credit lines.

Bri­tish banks have had low bad debts over the past few years through a pe­riod of rock bot­tom Bank of Eng­land in­ter­est rates and eco­nomic growth.

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