Posted by Iain Withers | 28 November 2018 | 1,430 times
Banks in Britain are trying to prepare businesses for a potential cash crunch after Brexit, whether or not a deal agreed by the UK and Brussels this weekend is approved by parliament next month.
Banks fear Britain’s departure from the European Union could cause a spike in bad loans with corporate clients, if it leads to delays in cross-border shipments and payments or big swings in sterling.
To protect against these risks some banks are extending credit early to companies and selling insurance against volatility in sterling.
State-controlled Royal Bank of Scotland trebled its “growth fund” for small businesses last month from 1 billion to 3 billion pounds ($3.86 billion), saying it had set aside extra cash to help customers to get through Brexit.
It said it may need to top up the pot again. “To a large extent it depends on the type of Brexit we get,” Mike Slevin, head of capital management at the bank, told Reuters.
It has identified nearly 2,000 at-risk companies across several sectors it believes are exposed to a Brexit fallout.
These include those reliant on complex overseas supply chains – such as car part manufacturers and medicine makers – and those susceptible to an economic downturn - such as leisure and construction.
Credit being offered by RBS includes increased import and export funding, supply chain finance and bigger working capital lines for everyday operations, Slevin said. It is logging where credit is taken up due to Brexit to track the impact.
But take-up has been slow so far and small firms are not as prepared as they ought to be, Slevin said.
“Many want to hold back from increasing lines until a little closer to the time because of the cost. So it’s a slow burn.”
CYBG - which owns the Clydesdale, Yorkshire and Virgin Money brands – has also been contacting businesses to offer credit, including farmers across Yorkshire and Scotland that account for a significant chunk of its business loan book.
British farmers are reliant on support payments from the EU, and while these are guaranteed by the British government for up to three years after it leaves the EU in March next year, the FTSE 250 lender wants to smooth any bumps in the road. (Reuters)
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