Nationwide scraps plan for business banking as Sunak simplifies failing loan scheme
THE Nationwide, Britain’s biggest building society, today U-turned on plans to launch into business banking as rival banks faced a welter of criticism over their failures to lend under the Government’s coronavirus scheme.
The Nationwide’s decision highlighted just how difficult the market is for lending to businesses as the country braces for a major recession and a potential epidemic of bankruptcies and missed loan repayments.
It came as big banks, vilified for not passing on state-backed loans under the Treasury’s coronavirus lending scheme, welcomed intervention from Chancellor Rishi Sunak to simplify it. New rules eliminate the requirement for banks to attempt to offer commercially priced loans first.
Nationwide also returned the £50 million grant it received last year under the government’s £425 million funding plan for challenger banks to open accounts for businesses. That follows Metro Bank’s decision to hand back £50 million of its grant after deciding to retrench from business loans.
Nationwide stressed it had not been planning to become a lender, only offering deposit accounts, but said: “The impact of Covid-19, including assumption changes to short- and long-term interest rates, has meant that the option of entering the business banking market is no longer commercially viable.”
Chief executive Joe Garner told the Standard: "This decision is not to do with the what is going on in the lending side of things. The operational side of business banking we could handle. This was all about interest rates. When they were cut to 0.1% the commercial validity just disappeared.
"We looked at the interest rate environment not just for a year, but we looked out 10 years and more and we can't get it to work."
Nationwide had seen the value in gaining access to business deposits as a way of funding its other lending operations, he said: "But at 0.1%, that money is not worth anything."
One banker at a big four bank said: “You can’t blame them. Who’d want to get into business banking now when you see what we’re all going through?”
Banks have been condemned for demanding personal guarantees from customers in return for access to Sunak’s loan schemes and, when they stopped doing that, were attacked for the lengthy application process. Barely 1000 loans have been issued under the Coronavirus Large Business Interruption Loan Scheme (CBILS) out of 130,000 enquiries.
Banks have blamed the way it was framed by the Government. Problems included the requirement to try to lend on commercial terms before putting businesses into CBILS — a lengthy process inevitably resulting in higher interest rate demands. Sunak ended that need last night in what was called “a game changer” by one banker.
A plan to open up the commercial paper loans market — usually reserved for only the top FTSE 100 companies — remains difficult, with bankers blaming civil servants for holding it up. Only £1.8 billion of loans have been issued through this scheme so far — many billions less than would be expected.
Applicants have to be deemed “important to the UK economy” to qualify — a value judgment dubbed “woolly” by one banker.
