By Ryan Weeks on Monday 21 November 2016
With the Chancellor’s first Autumn Statement looming, OakNorth CEO calls for further extension of the Funding for Lending Scheme.
Rishi Khosla, CEO and co-founder of challenger bank OakNorth, has called on Chancellor Philip Hammond (pictured right) to rethink his approach to the Funding for Lending Scheme (FLS). The scheme, which was conceived to get the big banks lending to small businesses in the wake of the global financial crisis, was recently extended until January 2018. But Khosla says that the extension of the scheme “isn’t much help” for challenger banks.
“For new, small banks such as OakNorth, the current extension until January 2018 isn’t much help as in order to join the scheme, we need a back book of collateral to pledge, but as a new bank, we have no back book,” he said. “We are hoping to join the scheme before the year end, but by the time we qualify, we will have a relatively short window to make the most of it.”
Khosla is calling on Mr. Hammond to extend the scheme in this Wednesday’s Autumn Statement, which will be the new chancellor’s first. The OakNorth boss says that the ongoing uncertainty that has been caused by Brexit and other macroeconomic factors is causing a number of larger institutions to scale back their business lending operations, making it more important than ever for the government to ensure that challengers are able to access the FLS “on a more equal footing with the larger banks”.
Speaking on the BBC’s Andrew Marr Show yesterday, Mr. Hammond said that he wants to ensure that the economy is “watertight”, that the country has enough headroom to handle “any unexpected challenges over the next couple of years”, and that Britain is “ready to seize the opportunities of leaving the European Union”.
Many will be anxious to see that maintaining access-to-credit for small businesses remains high up on his list of priorities. Hammond said yesterday that ensuring job security would be a “key priority”. The FSB estimates that SMEs currently account for 60 per cent of all private sector employment in the UK, equal to about 15.7 million jobs.
OakNorth’s Khosla also commented on the 8 per cent corporation tax surcharge, which encompasses both old and new banks. The surcharge replaced the old Bank Levy, which only applied to the big banks. Khosla said that to apply this new charge to all banks – even those that had "nothing to do" with the financial crisis and “pose no systemic risk” – is a retrograde step from the government.
“Not only does it make investment into the banking sector 8 per cent less attractive – relative to fintech businesses for example – but it will also mean that we have 8 per cent less to reinvest in our business,” he said. “No other sector is penalised in this way.”
Khosla notes that challenger banks are already forced to endure “much higher capital requirements” that their larger competitors, and says that the government needs to address these issues now, “before the damage is done”.