Weekly Blog by Philip King, CEO of the ICM - 'End of term report: could do better'

Last week Professor Russel Griggs, Independent Reviewer of the Banking Taskforce Appeals Process wrote a guest blog and I'm grateful to him for sharing his thoughts ahead of the publication of his second annual report. It was an interesting blog and has prompted me to return to a theme I've written about more than once before: the need for greater awareness of the appeals process.

 

Despite the assurances I hear from senior bankers at government forums and elsewhere that the independent appeals process is being drawn to the attention of businesses who are declined loans, I hear too many examples where that clearly isn't the case. Not so long ago, I listened to a presentation by a regional bank executive who seemed unaware of the process at all and, more recently, one of our own ICM members shared his experience with me. After a 37 year relationship with his High Street bank, he was told that his overdraft facility was being withdrawn because it had decided to discontinue its relationship with all customers in that particular sector. He approached alternative banks and raised the issue with the Financial Ombudsman Service, several MPs, the OFT, and government ministers. Neither his nor the other banks, nor one of these parties pointed him towards, or made him aware of, the independent appeals process.

 

I've always said that banks must be free to make their own lending decisions and I've resisted all the voices suggesting that banks must be 'forced' to lend. I stand by that view. The appeals process was intended to create an environment in which businesses could be assured that a loan declined had been declined fairly or provide an opportunity for such decisions to be reviewed and reversed when appropriate.

 

I expect Russel Griggs' report to show the process is working well when it is used and this should be applauded, but it can't work if people don't know about it. The banks, and government, aren't doing enough to bring it to the attention of customers and the wider business, financial and political community. They must do better.

 

Guest Blog by Professor Russel Griggs OBE - 'Leave to appeal'

Twelve months ago I published a report as the independent external reviewer of a Banking Taskforce initiative into the new ‘appeals process’ – a process by which small businesses (up to a turnover of £25 million) could appeal if declined lending from their bank.

 

In the first year of the process there were 2177 appeals and 39.5% of decisions were overturned. (An overturn is where the bank and the customer reach a satisfactory conclusion to a lending application.) This does not mean that the business has received exactly what they asked for initially, but that they have reached a lending agreement with which both parties are satisfied.

 

At the time I was quite satisfied with the numbers, given that the process was still in its infancy. I said then that banks and all other parties and bodies involved in working with SMEs needed to do more to ensure that their business customers knew that the right to appeal was available, and that the true effectiveness of the scheme would be apparent only when the process had been more widely promoted. I said also that the banks needed to make sure that those who lend are properly qualified and trained to do so, and that the reasons why a loan may be declined need to be properly communicated and understood.

 

Next month I will publish my second Annual report and while further progress has undoubtedly been made, there are clearly still issues with the extent to which the appeals process is being promoted, both externally and within the banks themselves.

 

The ambition with the process was to encourage and engender a better dialogue between customers and the banks, and my report will show to what extent this is now being achieved. My report will also look at the key reasons why loans are being declined – both through credit scores and issues of ‘affordability’ – and what progress is being made to better understand the banks’ scoring system and the role of external credit reference agencies.

 

The ultimate objective is to make the lending environment for SMEs operate as smoothly as any lending environment ever can or has. We will soon see how far we have travelled in reaching this objective.

 

Professor Russel Griggs OBE

Weekly Blog by Philip King, CEO of the ICM - 'Whistling in the wind'

If you've read the latest (May) edition of the ICM's Credit Management magazine, you'll have seen mention of a survey finding that 42% of SME respondents had never heard of any of the current Government or bank-led initiatives to support small businesses. The recent news about funding through the Business Bank and the increase in length and breadth of the Funding for Lending Scheme is great news but only if businesses are aware of the help that might be available.

 

I was pleased that, of all the schemes, awareness was highest for Start-Up Loans. Regular readers of my blog will know that I'm privileged to sit on the board of Start-Up Loans and I know how much work has gone into raising public awareness, not least by James Caan (the Chair) who has used his personal profile and networks to such great advantage.

 

There have been numerous other initiatives supporting small business in recent times such as the National Loan Guarantee and Enterprise Finance Guarantee Schemes as well as the 17 introduced by the British Bankers' Association (BBA) Task Force in 2010. But none of these serve any purpose unless businesses, banks and others are aware of their existence.

 

One of the BBA initiatives was the creation of an independent appeals process for when loan applications were declined. Russel Griggs, who chairs this, has done good work and his reports show the effectiveness of the idea but I've seen recent examples demonstrating clearly that awareness is woefully inadequate.

 

I heard in the last few days from a business that had thrown in the towel after its current bank had withdrawn facilities despite a 37 year positive relationship, loan applications to other banks had been declined, and engagement with the Financial Ombudsman Service, MPs and numerous others had failed to have any impact. What astounds me is that at no point in this whole process was the business pointed towards the very appeals process that might have helped, or at least allowed it to understand the various banks' position.

 

Surely some of the parties involved would have heard of the appeals process and could have signposted to it? Not long ago I was at a presentation by a senior regional manager from one of the major banks and he was totally ignorant of it, so perhaps not!

 

In this age when we can communicate in so many different ways, and when instant communication is the norm, I find it sad and strange that getting important messages communicated and understood is so difficult. I guess it's incumbent on all of us to ensure we are well informed and up to date with what's going on in the business world and that we play our part in passing important messages on to those who might benefit from them.