More Freedom For Commercial Banking – 16.04.20
According to the Government’s latest data just 1.4% (4,200 of 300,000 that have sought help online) of those businesses that enquired about the Coronavirus Business Interruption Scheme (CBILS) have been successful. Tens of thousands have made formal applications but accusations of excessive bureaucracy and reluctance to make loans are being blamed for only a small fraction being approved. The lack of available bank staff, across all the banks involved in the scheme is also holding up initial applications. We will deal with that later in this Newsletter.
The Chancellor has made a number of changes to the scheme already including loosening the criteria for loans and banning banks from asking for personal guarantees. He’s set to extend the scheme further, including businesses with a turnover of £500 million and doubling the interest free loans available to businesses to £50 million. The one thing he could do to make this process much easier would be to guarantee 100% rather than 80% of loans as has been done in Germany and Switzerland. The Government would take all the losses if businesses can’t repay the loan but it would speed up the approval process because banks wouldn’t be exposed to any risk of loan default.
FCA Issues “Dear CEO” Letter
Today the FCA has written a “Dear CEO” letter making it clear that they will be monitoring closely the Senior Manager responsible for lending to SMEs. What they want to avoid is the position during the financial crisis when lots of SMEs were denied loans and put out of business unnecessarily. In that letter the FCA say:
“Our objective will be to ensure that there is not a repeat of the well documented historic issues in the treatment of SMEs. As we consider the move from initial crisis response to a medium-term model, it is critical that we learn the lessons from those events and we cannot see the mistakes repeated”.
The FCA is making it clear that if a large number of loans are being rejected then the CEO and Board are under an obligation to monitor what’s happening and to challenge those decisions, where appropriate. Mr Antonio Horta-Osorio recently said Lloyds had agreed 90% of applications for additional working capital and capital repayment holidays. But that figure needs to be broken down because members are telling us that in their areas only 60-70% of applications for working capital are being agreed. The FCA and the Treasury Select Committee will be monitoring that figure very closely.
We would like to know from members what percentage of loans are being agreed in their area?
What Needs To Change?
In response to our Newsletter last week – ‘Pressure In Commercial Banking’ – our members have said that the new scheme is too complicated and there are too many processes. And those processes are changing every day, with the number of briefings issued by the bank being well into double figures. Relationship managers are finding it hard to cope with the large number of applications and on top of that are finding it impossible to read everything issued by the bank. Many are concerned that the Compliance Department will come knocking at their door when this crisis is over because they haven’t dotted every ‘I’ and crossed every ‘T’.
It’s also alleged that the Lloyds Credit department, and we assume this is being driven from the top, seems to be more interested in treating customers as though they are in financial difficulty rather than offering them support. Financial support is what customers need and the Government has put in place a scheme to enable that support to be delivered but it requires banks to play their part. Members have come up with a number of suggestions for improving the scheme including:
- Offering a CBILS overdraft facility instead of a loan. An overdraft, which a lot of businesses would prefer according to some members, could be based on 10% of average turnover for the last 3 years.
- Reduce stress testing. The bank’s current credit policy calls for loans to be stress tested at a base rate of 3.5%. In the current environment, that’s far too high and should be reduced to a more realistic level.
- Ease the affordability rules. According to members, one of the many reasons loans are being declined is lack of affordability based on three years’ worth of historic accounts. In those circumstances, relationship managers should be able to use their knowledge of the business to determine whether it’s viable or not and should be able to agree loans up to £250k.
Lifting The Pressure Off Commercial Staff
Like all banks involved in the scheme, Lloyds is struggling to cope with the number of loan applications and staff simply can’t carry on working the same number of hours every week. It’s not physically possible. More staff are going to go off with stress related illnesses if nothing changes in the short term. One suggestion put forward is to ask those relationship managers who have left the bank because of retirement or redundancy to come back and volunteer to help out for the next few months. The NHS and other organisations are doing it and so should banks. Such a scheme will take some of the pressure off current staff and will allow loans to get to the people that need them more quickly. If all banks did the same then it could be a game changer. The exact details of how such a return scheme would work can agreed with the union.
Pressure In Commercial Banking – 09.04.20
Whilst the Government’s Coronavirus Business Interruption Loan (CBIL) scheme, which is worth £350bn, is welcome news for those businesses that might not be able to secure finance through their bank, the pressure placed on relationship managers to respond to customers’ applications is ratcheting up every day. If the bank doesn’t quickly put more resources into this part of the business then it’s only going to get worse. And the staff dealing with loan applications and customer enquiries are also having to cope with the fact that large numbers of their colleagues are also self-isolating. And we know that’s only going to get worse too.
The pressure on the commercial business is going to remain intense for a long period. The bank needs to set out a clear path through these operational challenges because if it continues there will be more staff off with stress-related illnesses than with COVID-19.
Some of the most recent comments from members are set out below:
“Working from 5am to 11pm has been normal for at least a week now”.
“I’m a Relationship Manager and I’ve got XX applications from customers wanting loan assistance to deal with and that’s on top of my ‘normal’ job. I can just about cope but not for long and many of my colleagues are in the same position”.
“Each application takes on average a day and a half complete without complications and then there is follow up work. Stress levels are so high, staff are fast becoming ill”.
“People are self-isolating with COVID-19 symptoms and my colleagues are being asked to help out with their work. I can see this getting much worse over the next few weeks.”
“I feel for my customers, some of them are desperate, but we just cope with the number of applications and enquiries. We keep telling our line managers but nothing changes”.
“Something has to give and my fear is that it’s going to be the physical and mental health of the staff on the front line. The support from immediate managers is there but only in words, no action or assistance in the form of more staff or less work load”.
There are a lot of concerns about the accessibility of CBIL with lots of newspaper reports claiming that many small and medium sized businesses are being denied funds. As of a few days ago, just 1,000 businesses, out of almost six million British SMEs, had been granted loans as a part of the £330bn coronavirus business interruption loan scheme. Some of those loans are still being processed but it’s still not hitting the mark. We’re told that the Chancellor will be addressing this issue again in the next few days. Alison Rose, talking about CBIL in the context of RBS, said that the banks are “not about to start writing blank cheques”.
We would like to know from members who are dealing with these applications about the problems with the scheme.
- What changes would they like to see to make it easier for SME customers to access the scheme?
- Should Lloyds be making any changes to its processes to make it easier for customers to get access to the funds?
- What are the main reasons for customer applications for loan assistance being turned down?
- Are Lloyds putting any obstacles in your way in agreeing loan applications?
We appreciate that members are under an enormous amount of pressure but any information you can provide us with about the operation of the CBIL scheme and work pressures in your part of the business would be useful in our ongoing discussions with MPs and Government Ministers.