NEW RULES COULD UNLOCK BANK FUNDING FOR BUSINESS

crowe-clark-whitehill-logoRecent changes to EU-wide finance rules designed to prevent bank failures could increase access to finance for small businesses, according to national audit, tax and advisory firm Crowe Clark Whitehill.

The legislation known as Basel III, aimed at ensuring greater responsibility in the financial sector through tighter control of banks’ capital, was recently amended by the European Commission to ensure that loans to businesses of up to £1.5m are protected from the impending restrictions. Under Basel III, banks must hold at least seven per cent of their assets as readily available cash to protect against another credit crisis, with reforms being phased in between 2014 and 2019 if the proposal is adopted by the UK Government.

The move by the European Commission comes at a time when, despite the best efforts of the Government and the billions it has made available via the Bank of England, the Funding for Lending scheme is not yet achieving what it set out to do – unlock funding for business.

Geert Struyven, Crowe Clark Whitehall’s Kent Financial Partner, welcomed the move, and said: “While £1.5 million may be too small for many businesses looking to expand, the potential effect of these changes to Basel III on SMEs is positive while the banks get themselves back on track in terms of their liquidity.”

Banks are required to have detailed action plans for Basel III in place by 1 January 2014, when the legislation is expected to become effective.

The changes made to Basel III address concerns that small business financing would decline if banks were forced to ring-fence too much of their money.

Despite injecting £16.5 billion into the Government’s Funding for Lending Scheme in an attempt to stimulate the economy, the Bank of England’s Trends in Lending survey showed a £4.5bn fall in net lending to businesses in the three months to May.

Mr Struyven is optimistic that the Commission’s changes will sever any link between the prospect of financial ring-fencing and a reduction in SME investment. He added: “Without these changes by the Commission there was a real danger that the banks would have restricted their lending to business even further by simply focusing on getting their own balance sheets back in order, rather than doing what they are there for – lending money.

“Now that banks have been reassured that lending up to £1.5 million to an individual business will not impact on their Basel responsibilities, they should be more open to supporting this important sector of the business community. Thanks also to the Funding for Lending Scheme, the banks now have an excellent opportunity to increase lending to those small to medium sized companies with a strong business plan and management team.”

 

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