Talk to most bankers about the idea of developing non-bank lending channels for UK business and you are likely to receive a dismissive response. But finding different, new models of linking those who have funds with those who need them has been slowly gaining momentum ever since the credit market froze back in the summer of 2007.
This issue of The Treasurer has a feature on the Corporate Funding Association project launched by a group of large enterprises to create a lending facility run for corporates by corporates (see page 18). The Treasurer has previously reported on other alternative finance initiatives, such as the move by M&G and Prudential to set up a fund aimed at direct lending to UK companies. And, ironically, one of the hot topics that treasurers are being urged to explore by their banks is supply chain finance, which is a bank- acilitated means for corporates to co-operate with one another to keep credit and trade flowing. And, of course, in the absence of sufficient credit, working capital has become all-important.
As well as the private sector eyeing up the possibilities, government has been keen to see whether non-bank lending channels can be carved out. At the start of this year HM Treasury released a discussion document on developing non-bank sources of finance for UK businesses. Comments were requested by the middle of February and the ACT played a full part in the discussion, engaging treasurers through an online survey. The idea was to look at the barriers that exist to more diverse financing for businesses with the intention of introducing proposals for reform later in the year.
The argument for reform as set out by the government is straightforward: UK businesses have historically relied heavily on banks for lending. While non-bank channels play some role in the financing of UK corporates, they are far more advanced in the US.
Developing non-bank lending channels would help to improve the future resilience of the UK economy in the face of financial shocks by providing an accessible alternative source of credit. But there are substantial barriers. ACT chief executive Stuart Siddall has written on the barriers (at www.treasurers.org/blogs/ceo/201002), and credit assessment and monitoring, corporate and bank loan pricing transparency, as well as loan and bond market infrastructure are all identified as substantial obstacles.
Treasurers are uniquely placed to have a significant impact on the long-term issue of lending. The support they give, the advice they offer and the action they take will be a major factor in determining whether significant non-bank lending channels are actually created or whether bank lending retains its traditionally dominant position.