It is reported that Nationwide, one of the UK’s largest building societies, has made the decision to delay the launch of its SME lending programme.
According to the Financial Times, this decision was caused by regulators demanding Nationwide hold more capital in order to cushion itself against further downturns in the economy. As a result, it will not begin to lend to SMEs until 2016 rather than later this year as originally planned.
The Prudential Regulation Authority (PRA) has set Nationwide the challenge of lifting its leverage ratio to 3 per cent by the end of 2015. At present, its leverage ratio – the measure of the building society’s capital as a percentage of assets – is only 2 per cent, meaning that any loans which pose a risk could significantly affect Nationwide’s targets.
Rather than entering into the SME lending market, Nationwide will, for the moment, focus on increasing its market share of current accounts. Yet a spokesman reassured small businesses that Nationwide remains committed to providing loans in the future.
He said; “We have previously said that it is our strategic intention to enter the SME banking market and that we will do this at the right time for the society and our members. That remains our intention.”
However, this is likely to be of little comfort to SMEs currently struggling to acquire the capital required for growth. Furthermore, this move could prove detrimental to full economic recovery, as the government believes this recovery depends on the unblocking of a “credit logjam” preventing small firms from expanding and creating new jobs.
Business secretary Vince Cable entered into the debate last week, claiming that demands by regulatory bodies that banks raise their capital levels is in fact causing further stress within the economy.
He said; “One of the anxieties in the business community is that the so-called ‘capital Taliban’ in the Bank of England are imposing restrictions which at this delicate stage of recovery actually make it more difficult for companies to operate and expand.”
Of course, the UK cannot afford another banking crisis triggered by unsafe lending, as a further dip into recession could spell real trouble for consumer-reliant industries such as leisure and retail. However, with small businesses struggling to meet their expansion targets, surely the priority of both regulators and the government should be to find a safe middle ground which allows the economy, and SMEs, to flourish.
Do you think that banks increasing their levels of capital should come at the expense of SME lending?