Memorandum submitted by Clydesdale Bank

I am grateful to you and your Committee for giving Clydesdale Bank the opportunity to set out our approach to supporting our business customers through the current economic challenges. As you will see from the attached submission, our business banking models differs from other UK banks. This has enabled us to continue to support and to lend to the vast majority of our existing customers very much as we always have done, despite the many challenges facing the banking sector.

As you may know, Clydesdale Bank PLC is part of National Australia Group, one of only a small number of banks worldwide that are currently 'AA' rated. Whilst part of a bigger group the UK business is managed by a UK executive team led by me and we hold a single banking licence covering both our Clydesdale and Yorkshire Bank brands. We have approximately 2.6 million customers, of which approximately 200,000 are businesses. We operate 342 retail branches (predominantly in the Midlands, North of England and Scotland), along with 77 'Financial Solutions Centres', which provide specialist support for our business customers. We provide traditional banking products and services and our approach has won significant customer approval and external recognition.

In November 2006 (the last time of its publication) a survey by the Forum of Private Business named Yorkshire Bank 'The Best Business Bank' in the UK, with the Clydesdale Bank placed next. In the same month, our call centre in Clydebank, Scotland, was named 'Best Call Centre in the World' at the Contact Centre World Awards. Last month, 'Your Mortgage' magazine named Clydesdale Bank as 'Best Mortgage Lender, Scotland' and Yorkshire Bank as 'Best Regional Mortgage Lender'.

This recent success is the direct result of our strategy to focus our business model firmly on the needs of our customers and, in particular, to build local relationships with the small and medium-sized businesses that bank with us.

Our Financial Solutions Centres are the focal point for the support that we provide to businesses. Each is led by a Managing Partner, who is a senior banker with a personal interest and involvement in supporting the local business community. Almost all credit decisions are made locally because our managers have built a deep understanding of local conditions and individual business circumstances. Similarly, deposits raised locally are reinvested locally. This local approach particularly suits the SME market that we operate in and our typical business loan size averages c.Ł170,000.

As we have developed strong and trusted relationships with our business customers, we know the issues that they are facing at the moment, and we believe that we have an obligation to work with them through the current economic challenges.

Even though we have always had a disciplined and conservative approach to credit risk, we still approve nine out of 10 business credit applications. This approval rate has not changed over the last year. What has changed however is the number of applications that we receive, these have fallen by approximately a third in the last twelve months as businesses become more cautious in their borrowing. We are committed to continuing to support trading companies wherever possible, particularly SMEs, but we have scaled back lending in some sectors, most notably for property development given the almost complete absence of a market for these activities at present.

As before, the majority of our business lending continues to be priced against Base Rate, with customers benefiting from any Bank of England reductions. Any change to rates or facilities that we need to make is agreed by negotiation rather than imposition. This is despite the significant increase in the cost of funds that we have faced as a result of higher than normal LIBOR rates and specifically the major dislocation between it and the Base Rate compared to long term trends. We have only been able to do this by reducing our own margins.

I hope that you will appreciate from the attached information the effort that we have made to forge a new approach to business banking with our customers and to differentiate ourselves in the market place. We regard the economic challenges that banks and businesses currently face as an opportunity for us to strengthen still further the trusting relationships that we have built with our customers.

Supporting Information from Clydesdale Bank PLC

GENERAL

· We are a traditional bank, managed in the UK and benefit from an Australian parent, one of only 12 AA rated banks in the world

· We continue to grow our UK business in a prudent and responsible manner.

· Our growth has been balanced, growing both lending and deposits. This means we have a responsibility to our savers as well as those with borrowings

STRATEGY

· Our focus since 2004 has been on becoming the bank of choice for SMEs.

· Our business model is based on trusted, local relationships with our business customers.

· We empower our managers to make local decisions enabling our managers to react to local conditions and individual business circumstances.

· Our focus is on businesses with a turnover up to Ł30m; reflecting this, our average business loan size is c.Ł170,000

· The basis for our growth has been the value we can add to a business rather than simple price.

· Since 2004, we have grown our business lending from Ł6.3 billion to Ł15.3 billion

BUSINESS LENDING

· We continue to grow our business - in the year to September, our business lending increased by 24% while business deposits grew 19%.

· This growth has slowed, principally because businesses are being more cautious in their borrowing - the number of new lending applications has fallen by over a third compared to 12 months ago

· We have a disciplined and thorough approach to credit risk. Whilst the number of applications has fallen we are still approving nine out of 10 business applications-the same as 12 months ago.

PRICING

· The cost of funds has increased for all banks as the competition for deposits has increased and interbank lending has slowed

· Banks are also being asked to hold greater levels of capital than 12-18months ago which has further increased costs

· We have softened the impact on our customers - our margins have reduced compared to 12 months ago (reduction of 44 basis points).

· Nearly 60% of our total business lending is priced against base rate with full base rate cuts passed to our customers, an approach we will continue.

· For our small business customers, borrowing less than Ł250,000, 100% of our borrowing is priced against base rate.

ASSISTING BUSINESSES

· During the current economic climate our focus is on supporting our existing customer base whilst prudently acquiring new customers.

· It is not in our interests to have any of our customers in financial distress.

· We are committed to supporting our business customers through these difficult times and helping them to be successful

· Our business model is based on a close relationship between the Bank and our customers.

· The Business Partner is the best person to provide early assistance to any customers experiencing difficulties.

· If appropriate, they can then call on the services of a range of specialists to assist the business.

· We have a strong track record in supporting our customers.

INTEGRATED FINANCIAL SERVICES

Clydesdale Bank has developed an integrated Financial Services (iFS) model to manage and deliver its business banking operations.

The majority of business lending is managed through the 77 Financial Solution Centres (FSCs), which are managed in eight regions. 50 are branded Clydesdale Bank (16 in Scotland, 34 in England) while 23 are branded Yorkshire Bank. An additional 4 are dual branded.

The iFS approach ensures that everything we do revolves around meeting the needs of our members. We offer a total banking solutions for SME customers that is tailored to their needs and integrated within the bank. But we also offer more than simply banking-the iFS model prioritises the additional benefit that we can create by helping to connect people and create value partnerships between our customers, partners and suppliers.

Each Financial Solution Centre is managed by a Managing Partner who is accountable for the performance of their Centre and is empowered to take decisions locally. They have all the essential resources that they need available to them, while functions (such as Human Resources) are delivered centrally.

We have placed a great deal of emphasis in creating the right culture throughout our network and believe that we have empowered a team of staff who are passionate and creative but, most of all, are committed to service and business excellence. We have done this by recruiting high performers with the expertise to build relationships and who are good communicators too.

We work to ensure that our processes are streamlined and completely customer-centric and that all of our Financial Solution Centres have a professional 'look and feel' with integrated technology that speeds the decision-making process

LOCATION OF FINANCIAL SOLUTION CENTRES

Rural Scotland	Brand Used	London	Brand Used
Ayr Carlise Dunfermline Inverness Stirling Perth Thainstone Montrose Inverurrie	Clydesdale Clydesdale Clydesdale Clydesdale Clydesdale Clydesdale Clydesdale Clydesdale Clydesdale	Canary Wharf Chelmsford Basildon Knightsbridge Paddington London City Richmond West End	Clydesdale Clydesdale Clydesdale Clydesdale Clydesdale Clydesdale Clydesdale Clydesdale
North & Central Scotland		East
Aberdeen Dundee East Kilbride Edinburgh Glasgow Paisley Bearsden	Clydesdale Clydesdale Clydesdale Clydesdale Clydesdale Clydesdale Clydesdale	Bury St Edmunds Cambridge Hertford High Wycombe Ipswich Milton Keynes Norwich Peterborough St Albans Watford	Clydesdale Clydesdale Clydesdale Dual branded Clydesdale Clydesdale Clydesdale Dual branded Clydesdale Clydesdale Clydesdale
North East		Southern
Doncaster Leeds Newcastle South Yorkshire Tees Valley West Yorkshire York East Yorkshire & Lincs	Yorkshire Yorkshire Yorkshire Yorkshire Yorkshire Yorkshire Yorkshire Yorkshire	Basingstoke Brighton Crawley Croydon Guildford Maidstone Tunbridge Wells Portsmouth Reading Southampton	Clydesdale Clydesdale Clydesdale Clydesdale Clydesdale Clydesdale Clydesdale Clydesdale Clydesdale Clydesdale
North West & Midlands		South West
Birmingham Bolton Blackburn Coventry Northampton Leicester Liverpool Chester Manchester Nottingham Derby Preston Lancaster Stafford Cheshire	Yorkshire Yorkshire Yorkshire Yorkshire Yorkshire Yorkshire Yorkshire Yorkshire Yorkshire Yorkshire Yorkshire Yorkshire Yorkshire Yorkshire Yorkshire	Oxford Bristol Bath Taunton Worcester Gloucester Exeter Plymouth Truro Cardiff	Clydesdale Dual branded Clydesdale Clydesdale Clydesdale Clydesdale Dual branded Clydesdale Clydesdale Clydesdale

SUMMARY OF THE IFS OPERATING MODEL

1 Value proposition

A full service, offering a traditional relationship model with decision making close to the customer and helping businesses connect to one another.

2. Customers

Targeting high-value and high-potential members from SME business segments.

3 Economics

Driving favourable economics through relationship based pricing and a low cost network footprint.

4. Staff and Incentives

Sharing profits through an incentive system that promotes "ownership" and aligns high-performance partners and encourages tenure.

5. Business Leadership

Attracting local business leaders as Chairmen to provide mentoring and connections.

6 Network

Reinforcing the powerful business network to create value for the members and is supplemented by referral partners/brokers.

December 2008