UK200Group members comment on the Basel Committee's plans to limit bank lending
Members of the UK200Group of independent accountancy and law firms have today commented on news that small banks are urging the government to fight proposed capital rules that could force them to launch emergency rights issues or curtail new lending. It comes after the Basel Committee on Banking Supervision proposed substantial increases to the capital that small banks should hold against parts of their businesses, including lending to landlords and house builders.
Duncan Montgomery, Tax Partner at UK200Group member firm Whittingham Riddell:
The Basel Committee's view is unfortunately ‘one size fits all’. We have a very different landlord market from, say, Germany, and today’s announcements on local government land going to small house builders seeks to stimulate a sector of the economy that this kind of measure will directly hit. SME construction companies need funds to trade at maximum potential; very few are cash rich and this measure directly hits their ability to trade and build the houses we need as a country.
If a traditional group structure with a holding company holding assets including property is included as a landlord, then borrowing costs for every UK trader of moderate size will start to rise. This could have wide ramifications for business structures, affect many well-run businesses and should have suitably exemptions for certain types of landlord and business.
Jonathan Russell, Partner at UK200Group member firm ReesRussell:
That small banks are struggling to meet the requirements of Basel III is no great surprise as special relief was given to them at the beginning of 2015 to give them more time to comply. It is the over-lending, especially on property, which caused many of the earlier problems in the banking industry and also it is the same over-lending which generates over-valuation in property. It is important that the banks, regardless of size, should meet the regulations and to do so means structuring their businesses to meet the requirements. Curbing lending on long term property loans will mean banks will need to look more at shorter term lending which is much more important to small businesses.