LOOKING AHEAD
December 2, 2009
A couple of thoughtful and informative pieces of analysis hit my desk recently - an economic forecast for 2010 from Ernst & Young's Scottish ITEM Club, and an HSBC report - the Business of Recovery.
HSBC's purpose was to examine the ways UK businesses are planning their recovery from the recession. E&Y conducted a study of national and international challenges for our economy as a whole.
E&Y saw a recent return to modest growth in Scotland, but was clear there is much at stake in the critical year ahead. They acknowledged that Scotland's financial services industry had not been as badly hit as might have been expected, but anticipated continued job losses next year as banks restructure. They suggested new players in banking may soften the blow. They also highlight our growing strength in asset management, and refer to recent significant increases in the number of fund administration businesses that have moved to Scotland, which, in their words, ‘is becoming a global hub for the industry'. This reflects my personal experience; there is a lot of energy and optimism in our asset servicing/fund administration industry at the moment.
Before anyone asks, I am sometimes accused of being too optimistic (or not pessimistic enough) about Scotland's financial services industry. You could say it's my job to be that way but, although I am very aware of the personal impact of restructuring and job losses on individuals, it must be right to take notice when arms-length, world class specialists such as Ernst & Young see strengths and opportunities in our industry.
SMEs
HSBC focused on SMEs, and found that Scotland's small business sector had fared well in the last 12 months, with a growth in average turnovers and, encouragingly, a strong expectation of growth over the next three years. (This is in line with coverage today of a survey by the Federation of Small Businesses in Scotland).
They also found that Scotland's business base was more international than the UK average, with higher numbers of businesses with markets in Europe and nearly double the UK average with markets in Asia -and they rightly highlighted this as a real growth opportunity for Scotland.
Lending
One issue both HSBC and E&Y discussed was the availability of funding to SMEs. E&Y warned that the restricted supply of finance will act as a brake on the early stages of recovery. HSBC saw a modest increase in lending, but a weakened demand. They found a lack of confidence in whether banks will lend, but also found that nearly two thirds thought their bank would be likely to lend if approached.
This chimes with the message from our banking members, who are very clear that they are, despite some contrary perceptions, open for business when it comes to lending. We have new data coming through on a regular basis on this - one most recent example being RBS's announcement this week of £16bn of extra lending for small businesses.
The combination of an inevitable higher cost of lending compared to the pre-crisis period; tighter scrutiny of potential borrowers; a depressed business environment and an understandable caution from SMEs because of all of this, is at the centre of the current lending dilemma.
We are slowly moving on from this position and it is hard to disagree with HSBC's view that ‘ banks and businesses will need to continue to work together to create leaner, fitter and more flexible outfits that can thrive in a recovery as they have survived in a downturn.'
Recession succession planning is the issue for 2010, and the rebuilding of trust and confidence will be at the heart of it.
Owen
