Financial support for small and medium-sized enterprises - Business and Enterprise Committee Contents

Examination of Witnesses (Questions 120-131)


16 DECEMBER 2008

  Q120  Chairman: I was not clear about the £1 billion and £2 billion. Were you saying you thought it was going to be £2 billion or you wished it was £2 billion?

  Mr Ibbetson: This question came up before, is £1 billion the right number, and I think Mr Hoyle recognised and challenged this to say, "Well, if £1 billion gets used, then there's an opportunity to refresh and have another billion". What the right number is, I do not think anybody knows, but it is very reassuring that there is £1 billion on the table as a first step and I think, if it all gets used, in many ways that would be good because that is helping SMEs and, if it all gets used, in a way that is bad because that is a demonstration of how difficult the environment is, but we want to see it used.

  Q121  Mr Bailey: Rather than take a whole lot of the Committee's time, is there anything that any of the other representatives would add to that? No, good. Can I just go on to the European Investment Fund. If you were in earlier, you would have heard the business representatives point out that there were some examples where the banks did not seem to understand it and indeed were not actually passing it on. Now, I think this is really only relevant to Barclays at this moment, but, first of all, what are you doing to help customers access these funds and, secondly, moving on to the others, is there any chance of other banks participating in this scheme?

  Mr Cooper: I am very clear what the European Investment Bank facilities relate to. I think there is a misunderstanding around that in the marketplace. We have been working with the European Investment Bank for about 14 years and we have had a good, long relationship with them and I think we have lent something like £3 billion through them over that period. First of all, we do not need European Investment Bank money for liquidity or capital. What the European Investment Bank is, because it is owned by European governments, is a triple A-rated bank and, therefore, it has one of best-rated agencies around and, therefore, is able to raise funds at a slightly beneficial cost to traditional banks, and actually the European Investment Bank dictates what they lend that money at to Barclays and other banks. We then work out the benefit of that cost versus our average source of funding, and we agree—

  Q122  Mr Bailey: I am sorry, I may have misrepresented it, but we are talking about the European Investment Fund which has been negotiated.

  Mr Cooper: By the European Investment Bank, yes, I am referring to that, so that benefit in cost or the price of that we pass on entirely to the customer. Now, what we have been working hard with the Government and with the European Investment Bank on is to relax its qualifying criteria which were pretty tough and they are now much more relaxed, dramatically more relaxed, I would say, and we are passing all our customers who request to borrow money from us to see that they actually pass the qualifying criteria. If the qualifying criteria are met, we pass all our borrowing requests through the EIB, so we are very pleased to announce that our first one was drawn this week for a family manufacturing business in Doncaster borrowing £200,000 to expand and they have received the entire benefit of the European Investment Bank funding by way of a cash-back upfront premium, which was a couple of thousand pounds, and they have used that to fund the valuation of their factory, so it is a nice story and we expect to turn that into hundreds of requests over the next few weeks.

  Q123  Mr Bailey: So that fund is already being used effectively?

  Mr Cooper: Correct.

  Q124  Mr Bailey: How well do you think businesses are aware of its potential?

  Mr Cooper: I think it is growing, so have done a lot of work to make sure all our 2,000 relationship managers understand it. As I say, even without the customers requesting it, every borrowing request we get we are putting through that facility, if it qualifies, regardless of whether the customers actually request it to be looked at from the EIB perspective. We are also working with the EIB to get the qualifying criteria relaxed even further and they are not the quickest in the world, but we hope to make good progress there.

  Q125  Mr Bailey: Would any of the other representatives like to comment on whether there is any chance of their participating?

  Mr Maltby: Yes, I can comment. Our expectation is that we will be drawing on these facilities early in the new year, hopefully as early as January. I think that the work that has been done to simplify the process and relax the criteria has been extremely helpful. What I would say, and it goes back, I think, to your original question, is that one of the important parts of any of these schemes is that not only customers understand what the opportunities are, but also our relationship management teams. I mentioned earlier that our small firms' loan guarantee lending had increased by 40% and one of the reasons for that is that we have actually gone on a very intensive training programme for our relationship managers, so we would intend to do the similar process when we are able to draw on the EIB scheme.

  Ms Peacock: We would draw on all schemes that we are able to draw on; it is as simple as that.

  Mr Ibbetson: Yes, we support the scheme. As, I think, the Chairman mentioned, there is a meeting today and we would hope for positive news out of that meeting today.

  Q126  Chairman: This is about risk-sharing, is it not? That is the issue on the table?

  Mr Ibbetson: I think it is the whole arrangement, whether it is risk-sharing or whatever it is. It is the whole arrangement about what the scheme will be, and we would hope to be part of that and, as Lloyds, join in the new year.

  Q127  Mr Bailey: What changes have the banks made as a result of participation in the Small Business Finance Forum?

  Mr Ibbetson: As a measure of my age, I guess, I was around the same table the last time it happened! It is very different this time. The co-operation between the Government, the banks and the representative bodies is much more co-ordinated this time, and I think that point was made in the last meeting. I have to say, I think it is a good networking meeting with positive actions coming out of it. It is an open meeting, it is a good dialogue, it is receiving input from the representative bodies, with solutions from the banks and co-operation from the Government, and I do think it is working.

  Q128  Roger Berry: Finally, credit insurance and the squeeze on credit insurance, do you think this is as serious a problem as some are saying and, if so, how should it be addressed?

  Mr Cooper: From my point of view, is it serious? I think it could become serious. I do not see it being serious at the moment. To put it into context, we have only had two examples where we have had to review with the customer the impact on their facilities as a result of that, so that is two out of close to a million customers which is a very small number at this moment in time. I do think that, if an insurer withdraws, you need to think, both as a bank and as a business customer, about why that insurance is being withdrawn. Is it right, therefore, that the business takes on the additional risk of the supply in fulfilling their obligations? I think that is a very serious thing to be looked at. I think the other thing too to help counteract that is that, if suppliers and businesses pay their businesses, customers and suppliers on time, the need for credit insurance is actually reduced somewhat, so at this moment in time I am not seeing it as a serious issue, but it is very much on the radar though.

  Mr Ibbetson: It is being talked about a lot now and I think it is becoming an issue. I think I agree, in a way, with Steve, that, if you had this dialogue three months ago, it would not have been an issue and now it does seem to be getting a little bit of momentum. It is going to have businesses looking much more carefully at whom they are dealing with, and that might have an impact on volumes of business, so I think it is becoming an issue. I have to say, I am not sure what the answer is to resolve it and it may be that another government intervention in due course is worthwhile.

  Q129  Chairman: Well, what are the looming problems which we worry about? What is the next problem facing the sector of banking for small and medium-sized businesses in general that we should be worrying about, as a committee?

  Mr Maltby: I think there is no one single issue. I think the issue of falling sales, the issue of cashflow from large companies that are maybe not paying smaller companies on time, these are real issues today and they are likely to continue and, if anything, likely to increase, so I think that the attention that has been brought through this Committee and, I think, through other initiatives across the political divide is important and it is important to actually focus on these issues now.

  Q130  Mr Hoyle: Mr Ibbetson, you touched on it, the problem of the energy companies and how that has been damaging businesses. I do not know if the banks have any experience of that because I know of a company where their energy bills have gone up 200% and I do not know whether that has been reflected. Also, is there some good news going to come from the banks next year, and do you want to share it with us now, or is there going to be bad news?

  Mr Maltby: If I can answer the first question on energy costs, we recently did a survey of businesses to find out what their issues were and, for Lloyds TSB customers, access to credit was sixth behind cashflow, falling income or falling sales, energy costs, fuel costs and there was one other, so I think it is a real issue and it is something where, for a small business, when you see falling sales, one of the things you want to do is actually manage your costs. Unfortunately, if one of your costs is energy, which in many cases it is, then actually they are not seeing those falls, they have not seen the benefits of the falls in some of the commodity prices, and that is actually causing real strain.

  Q131  Mr Hoyle: Do you think the actors in the cartel are too powerful?

  Mr Maltby: That is not something that I—

  Chairman: Sadly, the Government has squeezed my debate, this Committee's debate, this afternoon on the floor of the House on precisely this subject with three statements, but we will be debating these issues later this afternoon and I look forward to your contribution then. Gentlemen, is there anything you want to add by way of conclusion or shall we draw matters to an end there? You are happy. Well, thank you all. We will keep a watchful eye on you all, and not just you four, but the rest of your colleagues as well, I can assure you. Thank you very much indeed.

previous page contents

House of Commons home page Parliament home page House of Lords home page search page enquiries index

© Parliamentary copyright 2009
Prepared 23 March 2009