It’s not the banks that don’t want to lend to manufacturers – it’s the manufacturers that don’t want to borrow to invest, according to one of the region’s top bankers.
Countering accusations from West Midland industrial firms that they are still facing major difficulties in getting hold of bank finance, the managing director of Barclays Corporate in the region said low appetite for credit was the reason lending is down.
Ray O’Donoghue, who also looks after the manufacturing sector on a national level for the newly rebranded Barclays Corporate, said investment in the sector was at the lowest level he could remember.
“Companies that are still in the sector are holding their own and doing reasonably well,” he said.
“There’s a bit of consolidation and a bit of growth in export markets. But we’re not seeing a lot of investment, people are not investing for expansion and investment is as low as I can remember it.
“People have battoned down the hatches.
“There’s not the demand for finance because people, quite rightly, are preferring to go liquid and focus on their cash.”
Earlier this month the Manufacturing Advisory Service West Midlands accused banks of not allowing their recent upturn in fortunes to trickle down to the industrial sector.
Its chief executive Simon Griffiths said firms in the region were being hampered in their efforts to grow by a lack of lending, despite the recent return to profits at the big banks.
But Mr O’Donoghue insisted that was not the case, and added that Barclays Corporate’s credit approval rates were between 85 to 90 per cent.
“I’m definitely seeing more the lack of appetite,” he said. “And the other tell-tale sign is I’m also seeing headroom in the limits that I’ve got.
“You’ve got companies who have got limits but they are not fully drawing them.
“Lending conditions have tightened but I genuinely think demand for finance has come off,” he said.
In a bid to break the stalemate between banks and businesses, which Business Secretary Vince Cable recently described as a “dialogue of the deaf,” the UK’s biggest banks have commissioned a report on the creditworthiness of companies that are being refused funding.
The move is part of a drive to convince the Government that they are only refusing credit to risky customers, and that they should not be forced to lend more.
Leaving the issue of lending aside, Mr O’Donoghue said he was seeing a “cautious realism” among his customers about the path of the region’s economy over the next few months.
“If I look at our business support team, which is a good barometer as they help business when they go through financial challenges, the number of referrals has been going down,” he said.
“I don’t think we need to put the flags out and I think spending cuts will have an impact, but people have steeled themselves.
“The fact is that they are not going to cut and be gone – they have got time to adjust.
“I feel there is cautious realism among my customer base which I’m quite encouraged by.”