British banks must rethink their lending decisions in 2012

The Royal Bank of Scotland and other lending institutions faces a year of tough decisions as they decide whether or not to pull the plug on companies that cannot meet their borrowing commitments.

High street names like Clinton Cards and HMV currently receive financial support from RBS, as do Thomas Cook and the Jurys Inn hotel group. However, the crisis in the Eurozone has led financial analysts to forecast a prolonged slowdown and the RBS global restructuring team could be in for a busy time.

Companies that are currently receiving concessions from the Royal Bank of Scotland and other lenders could end up being part owned by their bank. Whilst that may not sound like an ideal solution, it would prevent the company being forced into administration.

British banks have been accused of restricting credit to SMEs but RBS has also been reluctant to come down hard on large employers. It granted loan facilities to Clinton Cards until 2013 even though the company has enormous lease liabilities. The bank appears more than willing to support its larger business customers at the expense of SMEs and seems unlikely to meet its Project Merlin targets.

Derek Sach, the head of global restructuring at RBS, has defended the bank's strategic approach to helping poor-performing clients but small businesses complain that RBS shows a lack of understanding when they approach it.

Lord Oakeshott has gone as far as calling on the government to take action against the bank if it does not implement a lending strategy that will drive economic growth and boost job creation.

There's no doubting that 2012 is going to be a tough year for businesses but the banks have a very important role to play in driving the recovery. And for that recovery to take place, viable small businesses must be able to access the credit they need to expand.

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