SMEs are laboring under a ‘postcode lottery’ when it comes to bank lending according to a major new report from Move your Money.
Coming at the end of a period where bank branch numbers have dropped 53% of its bank branches since 1989, the research mapped bank branch closures against the British Bankers Association postcode lending data, and shown that ‘bank branch closures dampen SME lending growth by 63% on average’ in postcodes that lose a bank branch.
This figure grows to 104% for postcodes that lose their last-bank-in-town. On average, postcodes that lose their last-bank-in-town receive almost £1.6million less lending over the course of a year – a significant and damaging drop in funding for areas that are already under commercial and economic pressure. Efforts have been underway for some time to address this, but clearly work remains.
In specific terms, The report mapped postcode level lending data against 55 bank closures on a geographic and temporal basis and found that between Q2 in 2013 and Q3 in 2015 within a given postcode, SME lending grew 2.13 per cent, slowing to 0.79 per cent after a closure.
‘Less opportunity to sell, grow, and provide employment’
“This reduction in the growth of small and medium enterprise (SME) lending both reflects and drives lower demand, meaning businesses have less opportunity to sell, grow, and provide employment. This weakens local business confidence, and ultimately results in higher rates of business failure,” said Fionn Travers-Smith, campaign manager for Move Your Money, and author of the report.
The report ends with a number of recommendations for reform in order to improve the balance of supply and demand in the SME lending space:
1) To strengthen the Access to Banking Protocol by:
- Forcing banks into data transparency on branch closure locations and dates
- Allowing for greater scrutiny of branch closures, assessment of their local economic impact, and to formulate appropriate policy responses to the evolving bank branch landscape.
- Implementing a rigorous public interest assessment before closing a branch
- Closure decisions must be genuinely influenced by the needs and likely impact of a closure on local communities, to avoid further abandoned communities.
- Meaningfully consulting local communities in advance of closure decisions
- So that those who would be most affected by a bank branch closures have the ability to influence the bank’s closure decision.
2) To recognise and investigate the case for banking in the public interest
- Undertake a full independent and public review into the case for state provision of banking in the public interest
- To explore where, how and why private competition is failing in the adequate provision of banking and financial services, and to investigate the feasibility of direct Government intervention to plug those gaps.