TM's Mark Young blogs on whether or not RBS's £1bn fund gives us cause for celebration...
Last week Royal Bank of Scotland announced the launch of a £1bn fund for UK-based manufacturers, the first of its kind targeting manufacturing as a sector.
The lending will be made available via a series of releases, for periods of two or three years, with the first release carrying fixed rates of 3.4% and 4.3% respectively. There will be a flat arrangement fee of 75 basis points.
Steve Radley, director of policy, at EEF, said he was glad there are such initiatives being introduced to support growth. “Recognition by the banks that they have a role in supporting productive companies is a welcome step in the right direction,” he said.
Furthermore – with RBS claiming the fund primarily targets small and medium-sized businesses – senior strategist at BGC Brokers and TM blogger Howard Wheeldon said the bank should be saluted for “heeding the call of the small guy for support.”
But Wheeldon raises a more intriguing point. “Each year banks do more to protect themselves against ‘bad’ loans,” he says. “Let’s hope that RBS isn’t just talking the right talk while having no intention of doing what banks are supposed to do – take a degree of necessary risk.”
In fairness, is this likely? Given the furore over the past 12 months about the risky practices of a bank now 84% owned by Joe Public, having been rescued from collapse with £45bn of public money, the board is unlikely to take risks with its funds. With limited expendable cash, RBS has to watch what it does with it now. And it still has bonuses to pay.
Borrowing is never easy
Peter Russell, head of manufacturing and infrastructure at RBS, told TM that RBS is borrowing capital from its own balance sheets, therefore not government-sponsored cash, to finance the Fund. This is good to know.
Nevertheless given the risk averse nature of banking today, its likely that the companies who really need cash the most – the ones that have used up all of their reserves in order to survive the recession, and have yet to experience much of the upturn – are not likely to be those that can reach it. Loans need good business plans to access, and many companies have weak balance sheets after a teak-tough 12 months and much borrowing still requires personal guarantees.
This view is shared by Simon Broadbent, MD of industrial equipment makers Broadbent and a member of EEF’s economic committee. “Any bank at any time can lend money – but not many companies are in a position to borrow it,” he says.
Also, the fund is available to both new and existing customers, RBS says. But switching banks for a company can be difficult because of the risk of losing special terms and arrangements that have been built up through a long standing relationship. Any existing borrowing with another lender is counted as liability when the loan assessment is made. The devil is in the detail and companies need to see what the small print says to judge whether bank lending is manifestly easier to obtain with the arrival of this fund.
RBS’s Manufacturing Fund is commendable as a show of support to the sector. But while the money has been made available and the headline rates are attractive, for many the champagne can be put on ice. Credit constraints still exist and SME manufacturers’ plight will not be solved by ventures like this alone.
Nevertheless, this fund is a step in the right direction and it is an example to other banks.
RBS’s job now is to convince potential customers that borrowing terms are less onerous with this fund than those offered by the general bank market 6-12 months ago. Only this will demonstrate that the fund can make a real difference to a sector that is, in the main, still reeling.
By Mark Young, The Manufacturer. Email your response to [email protected]