Niknam Hussain

All things Niknam Hussain

28 October

What are the banks good for?

I have tried to resist the general consensus that all banks are greedy good for nothings and all bankers should wear a badge so that we can vilify them at every turn. Banks in all their forms do a vital job in any economy, they maintain and build growth with prosperity. I have also said more than once that anecdotal evidence is not good evidence, but when it is consistent and chimes with the general evidence that it can serve as an example.

IF they are doing their jobs, banks are a positive force. My contention is that clearing banks, the banks on many High Streets have become dysfunctional and do not serve any sort of service to people in general and small business in particular. Remember, ALL the clearing banks have been helped in some way by tax payers’ support, whether directly, like Royal Bank of Scotland, or indirectly, like Barclays, through ‘Quantatitive Easing’.

Why have I come to that conclusion? The reason is a build up of experience, some personal, some as helpers to friends and business associates.

A friend owns a business that has been in exitence for 25+ years, he gets a contract to provide a service to a local authority, to provide that service he must purchase some capital equipment. So where does he go but to his local bank that has seen him grow from one man to a multi million pound business. Now with base rates at .5 % that’s half of  1%, he was expecting to pay say 12 – 15% interest rate and had built that into his business plan. I think that even this is outrageous, 30 times base rate, but he said that’s the going rate!

Guess what he was offered? 22%!!!

Now bearing in mind that, quite correctly, local authorities have worked hard to screw down their suppliers’ prices, so cutting margins wafer thin for suppliers, how in God’s name is a supplier supposed to grow his business on an interest rate of 44 times base rate? That to buy capital equipment on a confirmed contract!

I went to some financial intermediaries who all said that they weren’t interested in anything below £2 Million pound loans. So my friend declined the contract, 10 people didn’t get employed by him, a vendor didn’t get his capital goods purchased, and the local authority had to spend more of tax payers’ money going to a more expensive bigger supplier!

I have many more examples, but one more – a small business in existence for 5 years, never been in debit but now in difficulties because its biggest customer is delaying payments. Asks for a small (£2000) overdraft. that’s refused, fair enough. The owner says to the bank, I can raise £1000 if I put that in and clear my overdraft, will you at least pay just 2 direct debits which are crucial to the running to of the business. The bank says NO!!!

In other words even when the the businessman was willing to clear his overdraft the bank is willing to close the business down and put a number of people on the dole!

I could go on but I’m sure there are many more similar stories out there.

The government should stop flooding the clearing banks with money and ensure it gets through, I’m not saying there should be easy lending, that’s what got us in to this mess, but the pendulum has swung much too far the other way where the standard response from the banks is “No, now what’s the question?”

Small businesses are the engine of economic growth and unless they are supported, our country will suffer. Banks have some how ceased to do their job of learning about the area, learning about the people and what measured risks are worth taking. Now we have some call centre which looks at a screen with stats that by definition are historic. Which business has not had hiccups and bumps along it’s way? Even, Apple, the company most in the news nearly went bankcrupt a number of times.

I just hope the Coalition Government sees the damage the banks are doing and do something before it’s too late.