Examination of Witnesses (Questions 100-119)|
16 DECEMBER 2008
Q100 Mike Weir: In their evidence
to us, the Clydesdale says, "We empower our managers to make
local decisions enabling our managers to react to local conditions
and individual business circumstances", and Lloyds TSB made
a similar comment, and you have both talked about the local approach
here today. Can you tell me to what level a local manager, say,
in my town of Breakon can make a decision and how do you define
"local" because, in my experience, the local business
manager might be based in, say, Aberdeen or Edinburgh which have
a very different economy from the local economy in Breakon, so,
how much can they do and how do you define "local"?
Mr Maltby: Our local management
teams can have the discretion for up to £500,000 lending
which actually covers 90% of the lend we do to small and medium
businesses. That local management team would be comprised of some
relationship managers, and I mentioned earlier that they have
an average of 20 years' experience. Depending upon their experience,
they would have the discretion for between £100,000 and £250,000
and their manager, the senior manager who is also local, would
be up to £500,000 and, on average, there would be something
around seven to 10 managers per senior manager. As to your second
point about how local, we do have local facilities and it is true
that Lloyds TSB today does not have a significant presence in
the Scottish market, something around about 5%, but in terms of
the major towns where we are able to provide that support, we
want to provide it locally.
Q101 Mike Weir: But, if you are talking
about seven to 10 managers, they are not going to be in towns,
smallish towns or even largish towns, but you are talking about
probably the four cities. Is that not the situation?
Mr Maltby: Those seven to 10 managers
are not all grouped together. The reason why there are seven to
10 per senior manager is that they are able to support the local
communities in each area. We have the benefit of having the largest
branch network in the UK and most of our managers are located
in our branches.
Q102 Mike Weir: So, to get this clear
then, the manager in the branch would have the discretion for
up to, you said, £100,000?
Mr Maltby: For £100,000 to
£250,000, depending upon experience.
Q103 Mike Weir: And then it would
be kicked upstairs to the next
Mr Maltby: But that upstairs would
still be a local senior manager. In some parts of the country,
that is further away, but our time to give a decision is the same
in Scotland as it would be in London.
Q104 Mike Weir: I would be interested
to know how you define "local" in Scottish terms, however.
Perhaps you could write to us on that.
Mr Maltby: I can write to you
Ms Peacock: Our average loan to
an SME customer is about £170,000. Those decisions would
be made in our local business centres and 90% of our credit decisions
are made locally. Where they are not made locally, they are not
made at head office, but they are still made within the region
in the vast majority of cases.
Q105 Mike Weir: But again how do
you define a "local" business centre? I represent Angus,
a largely rural area with small towns, and I doubt whether there
is a local business centre in Angus. There may be in Dundee or
there may be in Aberdeen. How many do you have in Scotland and
what sort of area do they cover?
Ms Peacock: We have 77 business
centres across England, Wales and Scotland and we have about 34
in Scotland, and, for example, we would have a centre in Dundee,
we would have a centre in Aberdeen.
Q106 Mr Hoyle: Just on that exact
point about business centres, what you have said, if I take it
right, is that you have 72, is it?
Ms Peacock: No, 77.
Q107 Mr Hoyle: And 30-something in
Scotland with a small population.
Ms Peacock: Yes.
Q108 Mr Hoyle: If we take the north-west
region which is bigger than Scotland and bigger than Wales, with
a population of around seven million, how many business centres
have you got in the north-west region?
Ms Peacock: Chairman, I would
have to come back with the exact number, but we have approximately
about 30 in Yorkshire Bank territory which would cover the North
East and the North West. Remember, we are a small bank, we have
about 2% of the UK market and in the last four years we have actually
doubled the number of centres and we have actually doubled the
size of our small business centres.
Mr Hoyle: The point I am trying to make
is that a local business centre sounds good, but the reality is
that, with a seven million population, I do not think you have
very many business centres and, compared to the population of
Scotland, we have got a much better footprint, and that is all
I would say. Your argument would be, "Well, we have more
customers there in the North West", but I will leave it at
Q109 Roger Berry: There are a number
of problems that SMEs could be, and are, facing. One is access
to finance on acceptable terms and the other is obviously the
need for business support and so on, but to what extent do you
think the problem facing the SME sector is the problem facing
much of the economy, which is a lack of demand for what they produce
or, alternatively, the expectation or the uncertainty about the
future and that that is the basic problem they face, which means
it is not your fault at all? Sorry, forget the last comment!
Mr Ibbetson: I was about to agree
with the last point!
Q110 Roger Berry: But you get my
point, that the small businesses that I know are not complaining
to me, I have to say, about their financial arrangements. They
complain to me because there is not enough footfall at the moment
and, if it is holding up at the moment, their expectation, having
read the newspapers, is that in the near future it is going to
get worse and that is their problem, but you are the experts on
SMEs, so is that your perception as well?
Mr Ibbetson: I think one of the
most important things, when I am trying to put myself in the shoes
of an SME, is actually they do not think about their banking first
thing in the morning. The first thing in the morning that they
think about is are they making a sale and are they going to get
the money in from that sale, so a pitfall which it is easy to
drop into is thinking, as a banker, that the SME is behavioural,
but that is not the case absolutely and they think about running
their business. All the ones I am speaking to at the moment are
saying, "Yes, sales are down", and, if you look at the
latest Federation survey, they have said that something like 60%
of their members said that sales were down, so they are the big
issues that they are facing, that the sales are down, the debtors
are not paying as promptly as they paid before, so they are the
issues. It would be glib of me to say that no, this is not the
banks' fault. We are part of the solution, but it is the economy
that is driving the problems that they are facing.
Q111 Mike Weir: We heard in the last
session about the concerns raised by the Institute of Chartered
Accountants of England and Wales regarding qualifications on accounts
as a result of the banks refusing to guarantee credit lines into
the future and the concerns of getting into a vicious circle where
businesses will begin to fail because they are effectively getting
qualified accounts. Do you have any comments to make on that?
Do you think it is a real problem?
Ms Peacock: If I may, it is not
a problem that we have faced. However, should we face that problem,
then a way of solving that problem is for us to agree the facilities
based on draft accounts. That enables the accounts to be signed
off and then, once the accounts are signed off, you can confirm
the facilities based on the full set of accounts, so, if we know
that these things are issues, then, provided the business is a
good business and is solvent, there are ways to solve that particular
problem, and I really do believe that.
Mr Ibbetson: I think it is becoming
a bit of a problem, yes, and it is something we need to watch.
I do not think it is a problem for the banks per se because I
think we know our customers well enough that, if they are getting
a comment on accounts, we can understand that, so it is not an
issue for the banks, as such. I think progressively it will become
an issue for credit reference agencies whose way of looking at
the credit standing is more predictive than through a manual assessment.
Q112 Mike Weir: Mr Izza made a very
good point that, even in the banking sector, suppliers may look
at it, and he quoted the example of Rumours(?) which has effectively
gone under because they could not get stock anymore. Ms Peacock
and others gave an example of how it could perhaps be tackled
and would you go along with that? Is that something you would
be prepared to do to ensure that this did not happen by looking
at the draft accounts and making sure there was not a qualification
due to the bank's lending practices?
Mr Ibbetson: I think that is quite
a fair way of looking at it, to be honest, and I do not think
it is an issue for the banks. In the way we assess the applications,
it is not an issue for us, but I do think that there is something
that needs to be looked at to the extent that it will not impact
adversely on trade credit, and that may be by the banks working
with the accountants. As a bank, we have come out and said, "Once
you have your overdraft, you have it for 12 months". We have
made that commitment ourselves and that should help the situation.
In many ways, it is no different than it has been in the past.
Q113 Mike Weir: I accept that, but
we were told that the banks use a sort of score card system to
assess risk. You have all told us that the reason that interest
rates are going up above base is because of their assessment of
risk. Surely, any bank looking at a set of accounts with a qualification
will say, "Well, there's a risk involved here. Is that going
to affect it?" You may know your customer, but what if your
customer decides to switch banks, for example? Surely, there is
a problem there. You seem to get into a circle of difficulty with
what should be a relatively simple solution.
Mr Ibbetson: I do not accept that.
I do not think that is right because I think, even if customers
are switching banks, if there is a qualification on the accounts,
we will have a conversation with the customer. We have face-to-face
relationships and we can iron out those queries. I think it becomes
an issue where there is a relationship which is not face-to-face
and a dialogue cannot be had, and I do not think that is within
the banking sector, I think it is the trade credit sector where
the issue is.
Mr Cooper: The financial accounts
are just one element of how we assess risk. Actually, for the
vast majority of smaller businesses, the financial accounts are
somewhat historic and we are more interested in actually the trading
performance of the business going forward, so, as to Peter's point,
it is actually very much about understanding the nature of the
business and that is the beauty of having locally based relationships.
I think the other point in terms of the information bit to which
you refer, actually that is far more based towards the behaviour
of the bank account which is far more realistic in terms of actually
understanding the actual nature and position that business is
in, so it is a combination of those things and I would stress
and urge no knee-jerk reactions by anybody to a qualification
on a set of financial statements, including the accountancy practice,
because I do not think within Barclays, and I am not seeing it
elsewhere in the market, that anyone, any bank has changed their
stance towards guaranteeing or not guaranteeing facilities for
the next six, 12 or 18 months, whatever the period of time is.
Q114 Mike Weir: Given that, if a
customer came to you and said, "Look, because of this, I'm
having difficulty with a supplier", is there anything the
bank can do, for example, contact that supplier and say, "Look,
their credit line is okay here", or anything like that? Is
there action the bank can take to deal with this problem which
clearly seems to be exercising the accounting profession? I get
the impression from you all that you think this is rather a storm
in a teacup as far as the accountants are concerned and it has
been blown a bit out of proportion, but is there anything you
can do to avoid it becoming a problem?
Mr Cooper: I am not dismissing
it, let us be clear on that. I think there are measures that can
be done so that, if any of our customers ask us for a reference
for a supplier of theirs in terms of whether they are good for
money or not, we would be prepared to give that based on the actual
nature of their position. I would encourage all businesses to
help their credit status by actually paying their people and their
suppliers on time, and we encourage it with all our suppliers
to make sure that they pay their suppliers on time, so I think
there are a number of measures that can be made, but it is really
about understanding the nature of the business and a blanket qualification
should not be necessary in very many cases.
Q115 Mike Weir: But you must accept
that in a recession where, with all the best will in the world,
businesses do fail, then for anybody looking at it, they are going
to be assessing the risk in the same way as banks, any supplier
is going to be looking at that and considering that to be a greater
risk to their own business.
Mr Cooper: Sure, everyone is slightly
more cautious in an economic downturn, as they should be, so I
think it is a combination of, again as I said earlier, accountant,
bank and customer talking together.
Q116 Mike Weir: But do you accept
that the accountants say that there is danger that companies may
be undermined by this?
Mr Cooper: I accept there is a
danger, but I also accept there is an opportunity and a responsibility
to work around that as much as we possibly can.
Q117 Chairman: The reason this is
so urgent in my mind is that we are coming up to the year end.
There is the calendar year end coming up and then the financial
year end next year and, if a significant number of businesses
are undermined by this for the reason, I think, that the accountants
gave, that suppliers, for example, are no longer prepared to supply
to them, which would be devastating, there could be a very urgent
and rapid effect. Also, I am concerned that I have seen in the
financial sector a lot of tendency for people to follow new and
arbitrary rules and whole categories of lending, whole financial
structures, are something ruled out, so I can just see suppliers
and so on, saying, "Hey, we won't deal with anyone with a
modified account", so I am rather encouraged by what Lynne
Peacock was telling us, that there is no need for any client of
your bank to have a modified account because you will talk to
the accountants and say, "No, it's not a problem". Basically,
what you have all said today, all four of your, about your policies
towards the SME sector is that you are very anxious to keep lines
of credit going, so surely a proper dialogue between relationship
managers probably and the accountant firm in question could avoid
modification at all. Is that right?
Mr Cooper: Yes.
Ms Peacock: Yes.
Chairman: Well, that is very helpful
and thank you. I am encouraged that you will take that back and
work on that because I do think it is an important issue.
Q118 Mr Bailey: Just to pick up a
point I was exploring earlier with Mr Cooper, although this is
really relevant to all members here, in terms of dealing with
"high-risk" customers, I think it was Mr Cooper who
mentioned the Small Business Scheme and we heard earlier from
the business representatives that it was great, they wanted it,
but it was not moving fast enough to actually address the urgent
problems that businesses were facing, so basically how are you
co-operating with it?
Mr Cooper: We have had several
meetings with the Government and HMT on this and I have been encouraged
by how open they have been to ideas and suggestions, but there
really was not anything other than simply a very high-level ideal
framework announced with the PBR around this, so that has been
largely sort of understood now in terms of what the business needs
actually are. Clearly, people like the Federation of Small Businesses
fed input into that as well. The legal arrangements are now being
drawn up and we expect to be able to use this, and quite aggressively
using this, from very early in January, probably the second week,
but it is days away now.
Mr Maltby: We are in a very similar
position and I think that I would echo the experience we had earlier
this year where the Small Firms Loan Guarantee Scheme was simplified.
There had been some feedback problems from businesses and banks
that this was a complex facility to administer and it was simplified,
and our lending on that scheme has increased by some 40% since
that was done, so we are having the same conversations or having
similar conversations with Steve and the rest of the banks and
we want to use, and draw on, these facilities, including the EIB
Scheme on which we are in active dialogue and we want to be in
a position to draw on that early in the new year as well to increase
our ability to support this important sector to us.
Ms Peacock: We are in a very slightly
different position because, being relatively small, for reasons
that one can quite understand, we are not always at these discussions.
Where we are at these discussions, we welcome it. We welcome the
initiatives that come out and actually look to take part in them.
Commenting on one particular initiative, for example, if you look
at the Debt Guarantee Scheme, we were the first bank outside of
the large eight banks to raise guaranteed funds under that particular
scheme and we did that actually in the last couple of working
weeks, so we are not always there, but we understand why we are
not there and I do not think we believe that we are being deliberately
excluded, but some of these things are being done very quickly
and it is not always possible to have every single bank around
Mr Ibbetson: I have to say, I
think the Small Business Finance Scheme is a classic example where,
working together, we can get a solution. I have no reason to assume
the other banks did not have bilaterals, but, from my own perspective,
for about six weeks prior to the PBR, I had bilateral meetings
with HMT and with DBERR, setting out what I believed the scheme
should be, what I believed the issues would be and why we needed
a resolution to the liquidity problems that were coming up. HMT
and DBERR listened. I had similar conversations with the Federation
and the Federation were putting in a number of £1 billion,
which they thought was the number, and, if I am honest, I thought
it was £2 billion, but I think £1 billion is a good
starting point, so here was a case where we did collectively try
and identify what the problem would be and come up with a solution
for it, so it was announced at the PBR and we are now working,
I think, fairly quickly to get it launched. I would agree with
everybody around the table, that the sooner we have this scheme
up and running, the better, and I think the beginning of January
is when it will lend, but we are working very closely with the
officials now to get it out on the table and operational.
Q119 Mr Bailey: Again, there does
seem to me to be a danger in it, that actually it misses the target,
ie, it becomes a source of finance for businesses that maybe are
not in the high-risk category.
Mr Ibbetson: I do not agree with
that at all. The whole structure of this facility is to address
situations where SMEs have cashflow challenges. These are classically
cases where debtors are not paying on time and the security now
is not enough to justify continued lending, so it justifies an
intervention from government in exactly those cases, so I passionately
believe that that scheme will provide an awful lot of resolution
to some of the cashflow problems SMEs will have.
Mr Bailey: That is very reassuring.