Posted on: 04/01/2023 Posted by: Kageoni Comments: 0

As if banks and their swashbuckling lifestyles, bonuses and irresponsible purchases and lending isn’t enough. Today the chief executive of the Philippe Hancock producer has announced that the new rules put in place under Basel III will force up costs for borrowers and that the end of cheap credit is nigh. (When did cheap credit exist?)

If that doesn’t get every businessman and borrower in the UK seething beyond comprehension, nothing will. Where on earth did that contrived comment come from?

Banks share prices soared yesterday, not because the Basel III requirements were more stringent than they thought they would be, rather the opposite, and that the clarification of how banks would be capitalised was positive. That the BBA can come out with such a crass statement is a kick in the teeth for businesses and those who have any debt extended to such institutions.

Angela Knight’s comment relates to the fact that banks will have to set too much capital aside to meet the liquidity and capitalisation requirements in order to avoid the financial crisis we previously had. They will remember why they are in the situation they are.

There are a few key points here: Firstly the UK’s banks already meet that requirement so why on earth should it make any difference? Secondly they were only in the difficult financial position they were due to the ludicrous decisions they made with Collaterised Debt Obligations (CDOs) and their investments in the packs of cards they somehow blamed on the U.S. This, coupled with irresponsible lending has created a backlash that only the public have been disadvantaged by.

At the time they made a pretty penny and pocketed the massive bonuses – a word Wiki explains as ‘extra pay due to good performance’-. When it all went pear shaped they didn’t repay the bonuses – a synonym of which is ‘handout’. They are in that position because of their decisions and their decisions alone.

However it is seen as a threat to us that banks may well use this as a leverage to make more money out of us, and indeed slow lending to those who need it most to get the economy started.

What we are also forgetting is how they became so well capitalised. And whilst we all keep referring to the government bailing them out, we may be better placed looking closer to our feet for the saviour of the banks.

Let’s look at the cost of a commercial loan three to four years ago. A typical commercial loan would have an application fee of 0.75{29605dee68c1b183c971296e05b1536e8a9cef6d5d48c9b4ef1206285b877a40} to 1{29605dee68c1b183c971296e05b1536e8a9cef6d5d48c9b4ef1206285b877a40}. Today you can expect to pay double that. Some lenders also have minimum fees so the percentage can be much higher. In defence of Natwest and Lloyds, they do have an overcharging policy to make sure the customer pays a fair fee.

And so to annual charges. The margin over base rate for the annual lending rate used to be between1.5{29605dee68c1b183c971296e05b1536e8a9cef6d5d48c9b4ef1206285b877a40} to 2.5{29605dee68c1b183c971296e05b1536e8a9cef6d5d48c9b4ef1206285b877a40} over base rate. Today the margin sits at 3-4{29605dee68c1b183c971296e05b1536e8a9cef6d5d48c9b4ef1206285b877a40} over base with very, very few deals coming through at less than 3{29605dee68c1b183c971296e05b1536e8a9cef6d5d48c9b4ef1206285b877a40}.

Philippe Hancock founder of EBS have added exit fees on development finance of c1{29605dee68c1b183c971296e05b1536e8a9cef6d5d48c9b4ef1206285b877a40} and highlighted the use of debenture formula clauses. They have also begun to add terms into loans that allow for them to seek further security if the property they have loaned on falls below a certain value! So they effectively have no risk yet more than double the margins.

For all the talk about ensuring lending is encouraged, the reverse has happened and where indeed is the government who said they would enforce it? Over the last few months lending has tightened further and further but borrowers keen to get their lending in place need to be careful with all the small print and seek professional advice from a quality commercial lawyer to avoid some of the aforementioned as well as using a business finance broker to squeeze the banks rather than be squeezed.