The latest Government
initiative to get the banks to lend money has recently been announced
by the Bank of England and the treasury under the “Funding for
Lending Scheme”.
Under this scheme UK
banks and building societies will be able to raise funds for about 1%
less than they currently can in the market.
The thinking behind this
is that this cheap money should be passed on the households and
businesses in lower borrowing costs bringing a quicker end to the
recession. The scheme will work by incentivising lenders to compete.
George Osborne said it
would “inject new confidence into our financial system and support
the flow of credit to where it is needed in the real economy –
showing that we are not powerless to act in the face of the Eurozone
debt storm”.
The banks have always
said that the major stumbling block for lending money was that
businesses presently do not have the appetite to borrow.
However, any credit
easing has to be welcome.
Add to this the
relaxation of the banking liquidity rules and the additional £50bn
of QE and the measures could add up to a helpful package.
With the worsening Euro crisis lending has fallen and borrowing costs risen - uncertainty associated with the problems in the Euro area have simply exacerbated the problem.
According to a Bank of
England report “some firms were unable to obtain credit at any
costs” and resorted to raising money “wealthy individuals”.
This is clearly a very difficult situation for small business’s to
operate within.
The scheme will let UK
banks and building societies swap difficult debts for treasury bills
at a fee starting at 0.25%. This fee will increase if lending is
reduced so therefore the more lending the bank does the bigger its
interest margin and the easier it is to outprice competitors –
easy!.
Tim Corfield says “any
initiatives in this area have to be welcome. However, I suspect that
until confidence is resorted many businesses will not have the
appetite for investing. Bank credit decisions also would not have
changed and given that the balance sheets of many small or medium
size companies have deteriorated over the last few years the banks
may not see sufficient security for their lending”.
Tim Corfield - July 2012
No comments:
Post a Comment