Greedy Banks will delay recession recovery

Greedy Banks will drastically delay our recovery from recession

Let me start by emphasising that I have some good friends who are bank managers, who have worked hard at building relationships with clients and their advisers over the recent years.

However, what I am witnessing now in the behaviour of many bank managers defies belief, to put it mildly.

I know we are in uncharted territory as a result of the credit crunch, and I realise that lending was too free and easy in hindsight especially when linked to soaring asset values.

Having said that, the governments around the world have injected massive amounts of money into the main line lending banks to ensure credit is made available to businesses and individuals, to ensure the credit crunch does not progress into a full blown world depression.

When they also drastically cut interest rates to 1% and below, the central banks have given much needed relief in times of uncertainty and reduced trade to most businesses out there.

The problem is many mortgage providers have not passed on all the interest rate reductions, ignoring government requests to do so, and opted instead to increase their profits, to compensate for their past poor lending decisions, or more importantly their poor investment decisions.

Now with businesses, I am witnessing the first offers of loans at interest rates of 7% over base and recently 10% over base.

I am now personally affected directly by these new attitudes. I am part of a syndicate who have invested in a prime bit of real estate abroad. This land worth more than $500,000 has no borrowing attached to it other than $70,000 borrowed on overdraft to pay for the architect fees to get planning permission. This overdraft is not only secured by a debenture, but also by a personal guarantee from the eight strong syndicate of relatively successful and reasonably affluent business people. I recently received an email saying our interest rate was to increase from 2% above base to 5% above base. No phone calls, no discussions – fait accomplis.

When I challenged it – the explanation was simply – this was the rate under their “risk profiling” of our project. What a load of nonsense! They clearly did not want the business any more, but did not have the courage to say so and call me. Well their  decision and their attitude will not be forgotten by those business entrepreneurs involved!

Now in May/June 2009, the “effective interest rate” in UK is currently -0.7% and economists have calculated that this will head down to -2.5% by the end of the year taking into account all the new money being injected into the economy under “quantitative easing” report that personal loan interest rates have increased by 44% in the past two years despite the massive reduction in base rates.

Well how on earth are we going to get this economy kick started if the banks make up for their massive incompetence with their past lending and investment mistakes by profiteering (I cant think of any better word) out of genuine hard working businesses looking to avoid making even more people unemployed while they struggle to survive in these awful times – and the government are so weak, they are letting them get away with it, even though they effectively own several of the banks.

But I do feel for some of the bank managers in the field – they have worked hard to build these relationships, which their superiors are arrogantly destroying. Some managers have the courage to call and apologise that they have no leeway – the decision has been imposed on them. I respect those, but unfortunately some others are as weak as their superiors and hide behind emails.

What a sorry state of affairs we have got ourselves into! And now I read that banks say demand for borrowing has dropped – I wonder why!

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