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JUST ANOTHER

IN THE WALL?

A re you happy with your firm’s banking arrange- The web was supposed to have ments? If not, why not? Are you concerned about the service, the fees or the interest charges? Or are you frustrated by revolutionised business banking, bureaucracy or lending restrictions? Most importantly, do you but many firms feel they’ve lost think that moving your account would resolve these issues? Anecdotal evidence suggests that most SMEs have a story to the personal touch and are having tell about their relationship with their bank. This can range from a mild whinge to a serious complaint. But increasing to do all the work themselves competition in the industry should mean that banks are keen to hear complaints and are thinking carefully about ways to – and pay just as much for the handle them. If they aren’t, a client can easily take its business elsewhere. So how well is the relationship working in practice? privilege. Ruth Prickett reports. “In 2000 the Cruickshank report found that banks were over- charging SMEs about £750m a year because they were, in effect, working as a monopoly,” says Andy Mowlah, policy analyst at the Forum of Private Business (FPB), which has been conduc- ting biennial research into banking for 20 years. “This led to a series of recommendations by the Office of Fair Trading for remedies such as limiting the banks’ ability to bundle services.

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As a result, the relationship has improved a lot, although the to compete in the investment-grade lending market, and that results of our latest survey last year suggests it has plateaued.” future growth will depend on the strength of M&A activity. This A review of the UK and European loan markets by Lloyds all sounds like good news for SMEs that want to borrow more TSB shows that banks are focusing more on middle-market in the near future. But will the relationship be as rosy as the borrowers because competition at the top end of the market is researchers suggest it should be? Mowlah believes that the FPB getting stiffer. European lending volumes rose by 44 per cent in research does raise concerns that banks ought to consider seri- 2004 on the previous year to £498bn, according to its research ously. For example, “competitive charges” appear as the second- report, owing chiefly to a large number of refinancings and highest priority on SMEs’ wish lists, yet only as number 17 in M&As. In the UK “the current debt markets are characterised their ranking of what the banks have actually delivered. Interest by high liquidity and intense competition among banks”. rates are also a potential bone of contention, but the most It states: “It is not only pricing that is under pressure but significant gripes emerge over issues such as clearance times. also structure, documentation and covenant packages,” adding “There’s no reason why electronic payments shouldn’t clear that there is “now a very clear trend of banks putting resources on the same day,” he says. “It happens in Sweden and Australia, into widening their marketing franchises to focus more closely so it must be possible if systems exist in these countries. Not on the mid-cap and regionally based companies”. having this is a competitive disadvantage for UK firms.” The report goes on to warn that the market is likely to con- Charges for internet-based transactions are equally irritating. tract so that only the strongest international banks will be able “SMEs are the biggest net depositors in high-street banks,

HOW DOES YOUR BANK MEASURE UP? “Banks have made a huge mistake by phasing out bank managers. Last month, for the first time ever, my firm filed its VAT return online. It was due on the Wednesday, “My firm is a dot-com, so it’s a potentially high risk because we so we transferred our money on Monday. The following have many web transactions.When we set up our account at the local week I received a yellow notice for missing the deadline. branch of a major high-street bank in 1989 it forgot to ask us for a When I complained to the bank, I was told that it took charge-back deposit to cover the risk that cardholders would report three days to transfer funds. The money left our fraudulent transactions. Then it got nervous and sent a manager to ask account the minute I sent the form, so where did it go? us for £500,000.We said no – we have very few charge-back problems I could have cycled from our office in Rochdale to the and are liable for them anyway. He then asked us whether we’d pay tax office in Southend with the cash in the time it took a £250,000 deposit.We said we were pleased that our risk rating had to get there electronically. clearly improved, but still refused.We now have a £30m turnover and “The bank told me that I didn’t have a business we’re with the same branch. I’ve seen our bank manager twice in three account manager, but that I could talk to a call centre years. Each time he’s asked me the same question. in Bradford. I spoke to my personal account manager “We then started a relationship with Allied Irish Bank (AIB) instead, but all she could say was: ‘It’s the system.’ because we needed to borrow to fund expansion. This relationship is I told her that the bank took my money for three days, completely different. AIB is focused on business and takes the trouble which I class as theft.” to understand our strategy. It also gives its managers some decision- Tristan Maynard FCMA, senior partner, making power over risk, whereas our local bank manager has none. BCS Partnership. The difference is understandable, since AIB specialises in business banking, but I still don’t know why our other bank “At the moment I’m quite happy with my bank and there “There has been a loss of personal can’t send us someone who are no real problems. But when I tried to hand-deliver contact. Unless you’re a major player, understands our business. a letter asking my bank to transfer some money I was service levels have deteriorated over “I also don’t know why, surprised when I arrived at the branch to find there was the past 15 years. Online banking is an although internet banking nowhere to post it. I gave it to a man going into the back extremely flexible tool for those who are is improving, we still get office who said he’d deliver it. The transfer took place informed, but it needs to be made more charged when we go online three weeks later. user-friendly. On the other hand, the to transfer money or why “When I queried the lateness of its response, the market is much more liberated now, there’s a £20,000 weekly bank was unable to trace who the man was or what had so if you’re unhappy with the services limit on what we can move.” happened to the letter in the meantime. I expect it had you receive, it’s easy to move elsewhere Howard Bryant ACMA, been sitting under his sandwiches.” – and you should use that power.” chief financial officer, Paul Koumi FCMA, principal, Regency Chartered Barry Pierce ACMA, director, ixabiso. Figleaves.com. Management Accountants.

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KEY FINDINGS OF THE FORUM OF PRIVATE BUSINESS SURVEY

Performance. SME customers reported that Allied Irish Bank, Charges. The number of businesses that didn’t know the basis Yorkshire and Clydesdale were high performers. Clydesdale and on which their charges were fixed had nearly doubled since 2002. AIB showed the greatest improvement. There appeared to be a decrease in fixed-tariff charging Complaints. HSBC and elicited the smallest although confusion increased. Companies that paid a negotiated number of customer complaints. charge rather than a fixed tariff tended to believe they were Banking channels. There has been little change in the use of receiving better service. high-street and telephone banking, but a marked deceleration in Numbers changing bank. 4.6 per cent of respondents said they the take-up of online banking. After rapid increases between 2000 intended to switch and had done so. 33.7 per cent said they and 2002, growth in internet banking has stalled at NatWest intended to switch but hadn’t done so. 61.7 per cent said they and , while the has seen a 20 per didn’t intend to switch. Small firms were more likely to say they cent fall. HSBC and Bank of Scotland are still seeing rapid growth. would change, but larger businesses were more likely to do so.

so it’s ridiculous to charge them for online transactions,” private companies and individuals. “We’ve come from nowhere Mowlah points out. to number four in commercial property banking in Britain,” When it comes to customer service, it seems that banks are says David Murray ACMA, the bank’s deputy managing becoming aware that many companies want personal contact director in the UK. “Customers like consistency of services and are reversing the trend towards offering fully automated and managers, because they know where they stand. We have systems and call centres. Some are even starting to provide long relationships to draw on and 70 per cent of our business is more of an advisory service. This is something that Raymond repeat business.” Clark, regional director, London, for , feels He reports that, although the retail investment market is strongly about. His company is busy opening 30 “financial overheated and generating annual returns of no more than five solutions centres” across the south of England and converting per cent, customers are still keen to invest in property, partly its northern branches to the same model. The centres are run because it’s generally performing better than equities. Investors by managing partners, who are encouraged to feel responsible are moving back to office space and industrial sites, as well as for maintaining relationships with their own customers. This focusing on emerging markets such as college accommodation encouragement extends to giving them a share of profits from and conference centres, says Murray, who’s also advising firms their centres and offering incentives for them to stay in place looking to invest in high-potential areas such as east London, rather than seeking a promotion away from the front line. where sites have been earmarked for the 2012 Olympics. The financial solutions centres will also allow members to “We’re concentrating on growing our share of the SME book meeting rooms for free if, for example, they are based in market in Ireland and will then spread this to the UK,” he says. Reading but need somewhere to meet clients in Canary Wharf. “It’s easy for banks to forget SMEs. We’re not that well known The bank does offer online facilities, but Clark thinks that these in this area, so we must show high standards of service, flexibil- should facilitate transactions, not replace personal attention. ity and good prices. We can, however, offer things like personal “We are continuing down the road of building customer contact because, unlike many of the bigger banks, we don’t relationships,” he says. “We have a saying: ‘For the right send everything to a call centre in India.” customer, the answer is yes. Now what’s the question?’” But it’s not much use complaining about your bank or Of course, the operative word here is “right”, and he argues knowing that competition in the sector is increasing if you’re that SMEs should meet their banks half way to improve rela- not prepared to vote with your feet. The FPB research (see tionships and show that they are suitable customers. “Treat the panel, top) found that the number of firms considering changing bank as a business partner,” Clark advises. “External auditors banks had increased, yet the actual amount that did so and lawyers are usually viewed as partners, but banks aren’t was almost unchanged from previous surveys. Also, many often seen like this. They should be.” respondents said they were confused about the level of interest Another bank that takes its role as a business adviser seri- and what charges they were paying. Although the report ously is Anglo Irish, which specialises in loans for corporate recommends that banks make these figures more accessible, it property investments. Although it’s a comparatively new player is up to the companies themselves to use it. FM (it launched in this market in 1986) the bank has thrived partly because it’s based in Ireland – a country whose population is the same size as Manchester’s, but which still manages to be one of the biggest investors in UK property – and partly because FURTHER INFORMATION property investment itself has boomed over the past 20 years. FPB research report. www.fpb.co.uk/YeEeunRo-NrlRw.html. Anglo Irish deals with traditional corporate investors such Lloyds TSB market review. www.marketplace.lloydstsb.com/doc/corp. as institutions, pension funds and investment banks, along with

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