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Forcing Banks to Lend Part 3

If anyone needed convincing that interfering with 'proper' lending decisions by forcing banks to lend makes things worse, they need only look at the latest HBOS numbers.  Huge increases in bad debts from dodgy loans and yet the authorities here want them to turn the taps on again...?

At the moment, a lending banker must surely be asking searching questions about the underlying reasons for new borrowing.  Not many companies can be expanding at present, which is surely the main reason for a requirement for new facilities.  At the moment, most of new borrowing is probably required to 'tide a company over'.  This is not especially a good reason for a bank to lend, as this is very risky at this time - and the HBOS numbers show very clearly what happens to risky lending.  Even if a company needs money to bridge the receipt of a payment, I guess the questions are, 'why haven't you got the money yet?  Is this outside your normal trading terms and, if so, why are they late?  What's the chance the money doesn't come in?  Wouldn't you be better deferring paying some of your own invoices until you get this payment?'

Any company needing 'tide over' funds, probably really needs more capital, not borrowing.  If they can't convince investors to put money in, why should a bank?

Even companies renewing facilities, especially where those facilities have never been fully used (e.g. where an overdraft has only ever been 50% utilised) should probably be questioned closely as to why it would not be sensible to reduce the overdraft.  If they believe they are now going to have to use the overdraft, having not used it before, the bank should be wondering whether this signals deteriorating trading circumstances, and therefore a greater risk of the lending going bad.

What Government Minister or civil servant, not trained in these matters, is qualified to override decisions taken by qualified people at the end of such analysis?  All we will do is dig a bigger hole which we, the taxpayers, will need to cover at some point.

One more reason why we should leave lending in the hands of the experts - despite what some of them have done in recent years.

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