More articles in the press berating the larger high street lenders (mainly RBS) for not growing their ‘net lending book’ and making comparisons to the positive net growth achieved by some of the newer players (such as Aldermore).
Growing a loan book becomes like ‘feeding a beast’ – individual bank managers know that if they’ve been successful in putting on a lot of new lending then they have caused themselves a problem: if they are targetted and rewarded on net lending they have to ‘run even faster just to stand still’ the next year. The problem is compounded across the whole bank.
With the likes of RBS and Lloyds having lent a lot of money to businesses over time, they have a high monthly repayment figure as loans are amortised. Whether the recent lower level of new borrowing is caused by suppressed demand, or bankers not lending, the book is bound to be declining.
A new entrant however has no such problem – there is not the legacy of a large declining loan book and every new loan goes a long way to increase the net lending.
So why are we making a big issue of this or even measuring it? We must also try to move the debate on about whether the problem is a lack of demand or bankers being too selective.
The real issue is about the lending application funnel: for the economy to grow we need to know that if a business sees an opportunity to execute a plan, and that requires bank borrowing, then that business must have the most positive experience and the best chance of getting funding – assuming the plan is viable.
The funnel begins way before the bank starts to measure it by a formal application being submitted to underwriters by a front line manager. It starts back when the business owner has the idea and sounds out his/her accountant or advisers. It is at that point that they may be put off taking it further. So this is about perceptions of how they will be treated. Perceptions can be managed.
The next step is how the early stage of the process works and how the case is presented. I have just got a lending case sanctioned by one manager at Lloyds when the business had been told by another manager, doing the same job in the same organisation, that it was not fundable. The difference was partly in the presentation, but partly also down to the ‘can do’ attitude of the right manager.
These are the issues that really make the difference.