IoD Bank Lending Survey - The Results

[Joanne Stuart]

Today we published the results of the second IoD Bank Lending Survey. This survey asked businesses about conditions since April 2009.

Over 200 businesses reponded to the survey, which showed that there had been an improvement in conditions, with 44% reporting that conditions had worsened over the last four months compared with 53% in our first survey (which covered the first four months of the year).

However, businesses reported difficulties with the approval process. The areas that caused the most frustration were the length of time it took to get a decision from their bank, an increased level of bureaucracy, a lack of local decision-taking and an increase in the amount of information the banks were seeking. This increased bureaucracy has ked to higher costs for business when they are applying for funding.

The main points from the survey were:
The headlines from the survey are:

• There has been an improvement in business requests for finance being accepted, although in a number of instances only part of the amount requested was approved. There appears to be a trend emerging of banks loans being closed and terms re-negotiated rather than loans being extended. We believe that this has contributed to the slight increase in businesses reporting that facilities have been closed.

• A significant number of those businesses that have dealt with the banks in the last four months have reported difficulties with the process. The areas causing most frustration are:

o Length of time taken to get a decision
o Increased level of bureaucracy
o Lack of local decision making
o Increase in the amount of information required, which is adding costs to the process

• Fewer respondents (34% compared to 48% in April) are reporting an increase in charges, however of these:

o 1/3 reported an increase in interest rates
o 1/4 reported in increase in overdraft, arrangement and operating charges

• 1/4 of respondents have been asked to provide personal guarantees.

• There has been an increase in the number of businesses, who are aware of the different support schemes that are available (Short Term Assistance Scheme has the lowest awareness, but it should be noted that this was only introduced in July), but it does not appear that these are being highlighted or discussed with the business.

• Confidence in the market and the general economic situation are major obstacles to investment, but the lack of finance is having a bigger impact than reported in April.

• Over 40% of businesses are considering switching banks with 8% already having switched. Some respondents commented that they would switch once we come out of recession.

• Payment terms from customers have increased for 61% of respondents this year, with 82% of respondents having to wait over 31 days for payment. This is being exacerbated by suppliers pushing for shorter payment terms.

• When asked what type of training and/or advice business would like to see, Dealing with Your Bank was the top priority, which reflects the difficulties that businesses are facing. The second priority was Managing Growth, which is a positive indicator that businesses are looking to the future.

• Only 22% of respondents have considered Venture Capital Funding.

Michael Murray, Chair of the IoD Economic Strategy Committee, Linda Brown, Director IoD NI and myself met with the Minister of Finance, Sammy Wilson, today to discuss the results. We are looking at ways to improve the communication and advice on the government backed schemes and how we can help businesses to ensure that they get paid by government departments in 10 days.

We will be meeting with the banks and British Banking Association over the coming weeks and we will keep you posted on the outcome from these meetings.

[Joanne Stuart]

I am just back from the Institute of Bankers dinner which took place in the Europa tonight and afforded me the opportunity to talk to some of the senior executives of the local banks about the results of our latest survey.

First Minister, Peter Robinson, gave the keynote speech which is the greater part focused on Public Sector Reform as the way to address the challenge of cuts in public expenditure and which would remove the need to add to the burden on the public in regard to water rates or increased regional rates. The First Minister also spoke of the difficulties for business with the banking sector, referring to the IoD Survey as underlining the position in Northern Ireland. This shows that the results are being taken seriously by the Executive.

Speaking to the First Minister after his speech, I underlined the main difficulties for businesses highlighted by the survey, and we have agreed to work with the Executive on continuing to raise awareness of the Government Backed Financial Schemes and working with Account NI to come up with a checklist of what business can do to ensure that they get invoices paid within 10 days. (FYI, Sammy Wilson is looking into government contracts to ensure that there is a clause included to ensure that sub-contractors are paid promptly by the main contractor)

The Cross Sector Advisory Forum created by the First and Deputy First Minister has a sub-group focusing on Bank Lending and Finance, chaired by Sammy Wilson, and the survey will be discussed at the next meeting later this month.

David Guinane, President of the Institute of Bankers, was honest about the current situation, and the need for the banking sector to step upto the plate to help businesses in the current climate.

There is a recognition by the Insititute and the local banks that the process for getting finance is much more difficult and that the banks could be more transparent about what is now required. Education is required for businesses to ensure that they have everything in place to make the process as smooth and quick as possible. The IoD are meeting with the banks and the British Banking Association and one of the areas we will be looking at is how we can get this information through to businesses.

Tony, your comment about the bank/customer interface is well made and is acknowledged by the banks, and I believe that we can help both banks and businesses to improve this.

[Tony Haren]

I was attracted to this Website by this article and the survey results so as a former lending banker and now a small business owner advising other owners about how to get the most from their banking relationship, I thought I would share my views.

Tim, you make some good points. As you say banks appear to have binned their marketing strategies although I expect that when faced with the problems they had to deal with, they thought like any other business owners with short-term problems and had to get their liquidity / cashflow in order, sort out their balance sheet and reassess the risks. I believe the first two issues will be resolved by the end of this year / early 2010 through the government backed initiatives (Asset Protection Scheme in UK and NAMA in RoI) and strong parent companies with access to markets for cash.

The remaining issue is the one of reassessing the risks. Banks undoubtedly have tightened their lending criteria but they all say they are still lending to what they call 'viable' businesses. Herein lies the difficulty - the word 'viable' is hard to define precisely and this is where business owners can improve their position and supported by their advisers should present a strong, well thought through case to their bank relationship manager for submission to the relevant Credit unit for approval. In my recent times in Credit Risk I saw too few good quality, well thought through proposals being brought to the bank for what were often fundamentally sound businesses. For many owners the source of advice is often their accountant and while some are very experienced in this area, many others are less so.

In summary, I believe the bank / customer interface is broken but repairable and with a well presented case (incorporating marketing strategies whre appropriate) the business owner can substantially improve his or her chances of success. As the survey points out it may be the case that a sizeable number of businesses will choose to present this to a new bank rather than their existing one.

[Tim McKane]

One of the key aspects of the survey from a marketing and communications aspect is how quickly the banks have binnid their marketing strategies. Business banking was all about partnerships, long term relationships, working together, providing support and advice. helping with innovation etc etc. As soon as the crisis hits, the reality is revealed and all those fine words are shown to be for naught. The result, 40% of customers are considering switching banks, the only problem is choosing which one. I know of a case where a sizable business has moved to a Dutch bank as their current bank, that they have 'partnered' with for many years tried to stick the arm in while they dealt with the results of the bank induced crunch. It reminds me of the old joke from the Troubles, of the man who was shot in the leg by the Army, and then arrested for possession of a bullet.
But on a serious side, there is a credibility challenge for the role of marketing. Are marketing strategies there simply to win short term business, or are they part of genuine long term busines planning. As usual not one single bank stands out from the crowd and realises that they could make a difference by sticking to their marketing promises, easily made in a boom, but too easily discarded in a bust.