Credit where it’s due … but banks can do more
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
‘ONE OF HIS GREATEST DISAPPOINTMENTS IS THE LACK OF PICK-UP IN INVESTMENT’
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