In the last major recession (1991-1993) banks did not have the sophisticated borrower analysis that is available to them today. It was quite common for Head Office Credit Departments to decide that they had an aversion to certain sectors and then send out instructions to their regional and commercial departments to haul in overdraft facilities to reduce exposure and thereby bring about more busines failures in that sector. When challenged on the wisdom of "targeting" a particular sector, they would cite the recent evidence of business failures aggravated by their actions as a good reason for their actions.
Two sectors that operate on particularly thin margins and are often seen as lead indicators of economic slowdown are transport and print, where the former have had to juggle with the highest fuel costs in Europe and the latter where there is always too much capacity so operating margins can evaporate overnight ! In the last recession we could see a broad approach being applied to these sectors regardless of strength of borrower.
So you would have thought that advances in technology would allow a more measured approach based on the risk that each borrower business represents in any sector ?
And of course which is the one UK Bank that has thus far avoided raising extra capital or become part owned by the Gov't ?
HSBC have made it abundantly clear that they do not wish to lend on property led transactions even where the borrower is a trading business already banking with them..........I could understand that they have no appetite for new commercial property risk where tenant profile especially within the retail sector can no longer be taken at face value. But to either reject a borrowing request or limit exposure to 50% of purchase price (just one recent example in the engineering sector) to a very successful trading business is non-sensical.
Typically a small industrial unit would see a yield of 7.5% today so paying a commercial mortgage at Base + 3% would be some 3% to 3.5% cheaper than renting provided the deposit by the borrower of normally 25% or 30% doesn't leave the business short of working capital in the short term. But asking the business to inject 50% as in the example above would most probably strain the working capital of the borrower to an unnecessary extent and thereby jeopardise the business itself.
We are seeing more evidence of a broad approach being taken again in this recession because quite simply the banks are short of capital and really need to get loans back in .........If your bank is starting to put pressure on you to payback in part or all of the loan you have with them, we can help - there is still commercial mortgage money out there !!!
No comments:
Post a Comment