Why UK industry needs banks that actually care

Struggling against the strength of sterling automotive component suppliers have arguably been one of the sectors of manufacturing in direst need of a lifeline.

Struggling against the strength of sterling, profits and investment plans badly hit by the downturn, and facing a squeeze by customers seeking to buy more parts in the eurozone, automotive component suppliers have arguably been one of the sectors of manufacturing in direst need of a lifeline.

The Bank of England’s recent quarter-point interest rate cut, if not exactly a lifeline, was at least a small buoyancy aid – in theory, at least.

Now it looks as though the Bank of England’s modest good deed will do companies no good at all, as reports emerge of banks tightening their lending policies to discriminate against small automotive suppliers.

The banks deny this is official policy, but plenty of anecdotal evidence from companies and trade associations suggests otherwise.

Banks’ attitudes to small and growing companies have long been a cause for concern in the UK. Criticisms range from the reluctance to provide start-up finance, to an over-reliance on expensive overdrafts as the main mechanism for providing funding, and the insistence that company bosses put their houses on the line as security.

The habitual practice of tightening lending criteria during recessions, at a time when firms already face cashflow difficulties, is typical of banks’ short-term attitude to the needs of their clients. The companies that are being hit are not basket cases, but basically sound companies doing their best to weather poor economic conditions.

What is particularly worrying, moreover, is that what happens to the automotive sector today could spread to other parts of manufacturing tomorrow.

Compare this to the German system, where the thousands of small and medium-sized engineering companies that form the Mittelstand have been sustained through long-term relationships with regionally based banks, which recognise these companies’ value as an important component of the German economy.

In the UK, the Bank of England offers a buoyancy aid; the commercial banks puncture it. Truly we need a different kind of bank.

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