Promises won't fill the lending gap.
Posted on March 2nd 2009
Mortgage Strategy: Alan Cleary’s column.
Managing Director
Good news is hard to come by at the moment but there is positive signs coming from the prime minister. The banks that we collectively own or part own as tax payers are now being ‘encouraged’ to lend more money to take up some of the slack. Quite clearly the slack left by the complete failure of the global capital markets is unlikely to be filled anytime soon but we are being told that the credit drought will start to ease over the next few months.
That being said there is still a massive conflict for the boards of banks in that their capital ratios are under intense scrutiny not just from the regulator but also from the media. Share prices yo-yo daily partly on the perceived strength of these capital ratios and the under-lying strength of balance sheets. My point is that I am still sceptical about the volume of additional lending being committed to and I also am concerned about exactly who this lending is going to go to.
The prime minister has alluded to £40bn of extra lending being made available but if the market is heading for net lending of minus £25bn this year and assuming all £40bn materialises in 2009 then net lending will be a mere £15bn. Of course the £40bn has to be split between businesses and homeowners, therefore, you quickly get to the view that 2009 will be negative net lending no matter what. The peak for net lending was £110bn in 2006 so the sheer size of the shortfall is daunting and it is blindingly obvious that a lot more has to be done.
Exact is publishing a White Paper this week on some of the alternative options that would enable the government to by-pass stricken banks and lend directly to householders.
