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Press release - ACF Consultants
Project Merlin Will Not Force Banks To Lend To Small Businesses
Finance expert predicts second period of stagflation
Release date: 01.03.11
PROJECT MERLIN WILL NOT FORCE BANKS TO LEND TO SMALL BUSINESSES
Finance expert predicts second period of stagflation
Project Merlin does not go far enough to force banks to lend to small businesses and starts-ups, says a leading financial consultant.
Despite new enterprises being seen as the route out of the recession, Lawrence Galitz of ACF Consultants, a leading financial training company, says the Government has still given too much power to the banks to say ‘no’ to all but the safest loans.
Project Merlin aims to restrict bankers’ bonuses, encourage transparency on pay levels and compel banks to start lending again to kick-start the economy.
But Galitz says the Government initiative has handed the banks a get-out clause by allowing them to lend to only ‘viable’ and ‘high quality’ borrowers.
“Who or what is a ‘viable’ or ‘high-quality’ borrower is still entirely up to the banks to decide,” says Galitz, CEO at the financial training company.
“Presumably ‘high-quality’ means those borrowers who don’t actually need the funds in the first place. Project Merlin will manifest itself in words rather than deeds.”
Galitz says that many banks are hiding their reluctance to lend by reporting a downturn in demand for loans in recent months.
“Banks may claim demand is down but in many cases requests are being stifled before a formal application is made,” says Galitz.
“If a business completes a formal application and is then turned down, it doesn’t look good on the bank’s statistics. But if the bank informally tells a business “don’t even bother applying”, then it can blame the lack of demand on businesses rather than on their unwillingness to lend.”
Galitz believes banks must overcome their fear of lending to prevent the economy entering a second period of stagflation.
“Having had their fingers burned by the bad lending decisions that led to the credit crisis of 2007-2008, banks now seem to be leaning heavily the other way, and are being too safe for the good of the economy,” said Galitz.