THE banking industry has struggled to generate positive coverage over the past five years and unfortunately, the public largely continues to view it negatively. The question is: will the new regulatory regime, as well as a new governor at the Bank of England, deliver change within our banking system and unleash what is urgently needed – competition?
The banking system is only useful if it gives its customers (both individuals and businesses) a healthy return on savings and is willing to lend. Britain may well be portrayed, as London mayor Boris Johnson put it, “as a nation of small and medium-sized enterprises,” but this culture can only be achieved if banks are open to lending to these smaller businesses.
Alternative forms of finance like peer-to-peer lending may plug part of the gap, but it is simply not sufficient to support the millions of entrepreneurs and first-time buyers in need of that initial push. Aldermore, part of a new breed of banks, is providing that avenue of support – and lending billions of pounds to people who need it.
The Bank of England’s Funding for Lending Scheme (FLS), now one year old, is going some way towards fulfilling this demand. Mixed reactions to the most recent figures – that saw lending fall by £300m in the first quarter of 2013 – should not mask the success that banks like Aldermore have had. In 2012, the FLS allowed us to increase our total lending by 75 per cent, with net lending through the FLS hitting £230m in the first quarter of 2013. As business secretary Vince Cable has pointed out, the only way for credit to filter through to SMEs is by putting new banks on the high street – or online in our case.
But how easy is this task and what is holding back more competitors from entering the banking sector? The government should first examine those aspects of the system that impinge on competition. If it wants to see more challenger banks emerge, it should reform the payments system, lower the barriers to entry for new lenders, support the Office of Fair Trading’s review of competition in SME banking, and reduce the burden of regulation.
There are doubts over the move to implement a higher capital ratio, but if these banks aren’t leveraged sufficiently and therefore unable to lend, to what extent can they be called banks? Regulators need to take a tough line on this so we can start to see a more level playing field.
One of the major issues for challenger brands or new breeds of banks – whatever you want to call them – has been credibility. New banks have not been a common feature for the British public in the last century, so it has been natural for customers to be tentative.
Banking is a critical industry to the UK economy. It is also one the UK excels at. So we all have an interest in having a successful, trusted and reliable banking industry, but it should only be successful by delivering for the rest of the economy, not acting in isolation.
Phillip Monks is chief executive officer of Aldermore Bank.