13
Examination of witness
David Postings.
Q95 The Chair: Welcome to today’s meeting, which is the ninth oral evidence session as part of the committee’s inquiry into the growth of private markets in the UK following reforms introduced after 2008. Thank you, David Postings, for attending.
This session is open to the public, is broadcast live, and is subsequently accessible via the parliamentary website. A verbatim transcript will be taken of the evidence and will be put on the parliamentary website. A few days after this session, you will be sent a copy of the transcript to check it for accuracy, and it would be helpful if you could advise us of any corrections as quickly as possible. If, after this session, you want to clarify or amplify any points made during your evidence, or have any additional points to make, you are welcome to submit supplementary written evidence to us. Do you want to say anything by way of an opening statement?
David Postings: I do not have a prepared opening statement, except to say that I represent 300 banks and finance companies through UK Finance, where I am the chief executive.
The Chair: Very good. Perhaps I could begin with the first question. The collapse of First Brands in the US has shone a light on the potential risks of private credit, including the ways in which exposure to the wider financial system can be hidden. Does this prompt any concern on your part, given that we have heard that the large banks increasingly lend to private markets, either directly or indirectly?
David Postings: I am not overly familiar with the collapse of First Brands, and of Tricolor, which is the business that was partially funding it. As I understand it, they used invoice finance. In this country, invoice finance is a tool that has been in use for decades. I would expect that what appears to have happened there, which is duplicate funding of invoices, would not occur here, because people would register a debenture, which would warn other lenders that those invoices have been pledged.
The Chair: Is it not a bit more complicated than that? We understand that UK banks originate loans to sell on the secondary lending market as collateralised loan obligations. Do you have any data on the size of this market and the exposure of UK banks?
David Postings: I am sorry. I was responding to the first question, which was specifically about First Brands. The CLO market is quite large. We estimate it to be about £450 billion. Typically, these are mortgages that are packaged up and then securitised. Other investors would take these on as a true sale.
The Chair: Would you be able to provide us with some data on this?
David Postings: I can subsequently, yes.
The Chair: We have also heard that the role of insurers in lending is growing, and that instruments such as funding agreement-backed notes are growing in use in the US. Are your members reporting an increase in FABNs?
David Postings: I am not aware of any particular increase. It is still fairly small in this country, but there is no doubt that insurers are providing SME finance at a greater rate than they have done before. The banks will be lending to those insurance companies to support that SME finance. It might be worth, at some point during this discussion, trying to define what we mean by “SME”.
The Chair: We will come on to that. I am just trying to get a handle on the scale. For example, are you seeing a growth in insurance firms providing direct lending for corporates in the UK?
David Postings: Yes, that is happening.
The Chair: Do you have any numbers on that?
David Postings: I am afraid that I do not.
The Chair: Would you be able to provide them?
David Postings: You might be better directed to talk to the Association of British Insurers about that. I do not cover insurance companies in UK Finance.
The Chair: I thought that Aviva, L&G and Phoenix were all your members.
David Postings: We do not cover insurance per se. We are banks and finance companies.
The Chair: Aviva, L&G and Phoenix are in the insurance world, are they not?
David Postings: I do not have the numbers for them.
The Chair: We also understand that risk management tools such as credit risk transfers or significant risk transfers are being increasingly used by banks to economise on capital. Are we seeing a trend such as that in the UK?
David Postings: There is some increase in that. That is a synthetic securitisation, where part of the credit risk is taken on by a third party. Comment was made back in April by the Bank of England about the growth in that market.
The Chair: Do you have any concerns?
David Postings: It depends on how it is structured. If the junior element is purchased and cash is exchanged, the risk is pretty low. If the counterparty does not exchange cash, it is a higher-risk transaction.
The Chair: What do you think is happening?
David Postings: It is mainly that the cash changes hands.
Q96 Lord Hill of Oareford: Could I ask a broader question about the extent to which the growth of private credit markets is being driven by an excess of regulation of banks? Is regulatory arbitrage going on?
David Postings: It has a part to play. Private credit markets have existed for decades, as you know, but there is no doubt that the way that banks are capitalised has an impact on their ability to earn returns. I have a few statistics that I hope are useful to you. If it is possible, would you mind if I tried to define an SME first? If we understand what we are talking about in terms of the market, the capital that supports that will be of more use to you. Is that okay, just for a moment?
The Chair: You are free to say what you like.
David Postings: There are roughly 5.5 million companies in the UK. Of those, 99.2% turn over less than £2 million, and 87%[1] less than £1 million. Only 30,000 companies are turning over £25 million or more. When we talk about SMEs, we would typically be talking about those that are turning over £25 million or less.
That is important because, when the capital is calculated to support lending to those types of businesses, it is done in different ways. For a true SME, a portfolio approach is used. For a larger business, it would be done on the individual credit, and so there is a difference in the capital weighting, which is particularly important when it comes to challenger banks.
Private credit amounts to around £60 billion out of a total of £600 billion funding to SMEs and those corporates that I mentioned before, so the majority is still bank-financed.
I have a few numbers on the capital calculation. We looked at a challenger bank and at a high street bank. Under the standardised model that a challenger would use, the risk weight for an SME is 55%. For a larger firm, it is 65%, because of that portfolio versus individual split that I mentioned. The capital allocated against a £100,000 SME loan would be £10,395 in the first example, and £12,285 in the second. That is quite a lot of capital. If you look at the same bank post Basel III.1, it goes from £11,907 to £13,797, so there is about a 10% increase in capital under Basel III.1 for that challenger bank. The reason for that is that the pillar 2A adjustment is difficult, because they have very limited pillar 2A capital.
For a high street bank operating under the internal ratings-based model, the risk weighting would typically be about 31% for an SME and 44% for a large corporate. It is a lower risk weight because they have the benefit of the internal ratings. We estimate that the capital charge there would be £4,216 for a true SME, and £5,984 for a larger business. Those numbers will also rise under Basel III.1, because, although they have pillar 2 to offset, the output floor will increase by between £620 and £880.
Both in the challenger model and in the high-street model, capital is already high, much higher than it was back in 2015 when the FPC looked at capital stacks, and it will go up under Basel III.1. The reason why that is relevant is that, back in 2015, the FPC said that capital was about where it should be for banks, at between 10% and 14%. Since then, the capital allocated has risen quite significantly, is continuing to rise, and will continue to rise under Basel III.1.
That is a very long answer to your question, but the answer is yes. Without doubt, capital constraints and capital issues will push lenders to think very carefully about the returns that they can get on their capital, and maybe funding private credit is a better option for them.
There are some other factors that drive this, one of which is expected loss in the portfolio, which is IFRS 9. That is, effectively, procyclical, so it insists that people look for future credit losses. In order to try to minimise those, people will clean up their portfolio, which results in lower risk weights through IRB. IRB itself pushes people to look for lower risk in their portfolio and, therefore, to not write higher risk. That pushes businesses to challengers on standardised, but also into private credit markets.
I would argue that the senior management regime as implemented is also something that weighs heavily, as well as the capital regulations. That combination of things has undoubtedly dampened down traditional bank lending over the last 15 years.
Lord Hill of Oareford: I am sorry to simplify the question, but would your members be more motivated to see a reduction in some of the issues that you have talked about, or them being addressed, whether that is SMR or the capital requirements, in order to free up their ability to lend? Is that more important to them, or do you have members who have written that off and accept that, who are switching their lending into private markets, and who are more worried about regulatory intervention in private credit markets that would shut down that route to them? When you have discussions with them, are they more motivated to try to address the current corpus of bank regulation, or are they saying to you, “That has led us to put more money into private credit. Therefore, we do not want private credit now to be regulated and shut down that avenue”?
David Postings: They want to help the Government with the growth ambition and to lend directly. That is my honest belief. When you are faced with high capital charges and a regulatory regime that pushes for risk aversion—last time I visited this committee, I talked about compound risk aversion and the buffers on buffers on buffers throughout an organisation—it is inevitable that that lending will be muted to some degree.
Remember that, when they provide finance to private credit markets, they do so under the same regime. It still has to have capital allocated to it. It still has to have a risk weighting. Government policy in the post-crash environment was to increase competition and to bring more lenders in, and we have seen a rise of smaller banks and private credit in that space, so it should not surprise us that that has happened. My members absolutely want to support the growth in the economy by lending directly to SMEs.
Lord Hill of Oareford: Most of that money that they are now putting into private credit is being invested in larger companies, rather than smaller companies. You would say that one of the consequences of the overall regulatory structure is that smaller businesses in particular are finding it harder to get investment from traditional bank routes.
David Postings: There are a number of factors at play. The first is demand. Demand from those smaller players is weak. Forty-one per cent describe themselves as permanent non-borrowers. The SME part of the market has been a net depositor since 2012. That tells you something about the psyche of a small businessperson. The DBT did a study into what factors drive investment, and taxation came top, with over 60% referencing that.
Lord Lilley: How does that drive investment?
David Postings: Their desire to either invest or not invest.
Lord Lilley: Why does tax make them want to invest more?
David Postings: It does not. That is the point. It is a barrier. Sorry, I should have explained myself. “What are the factors inhibiting investment?” is what I should have said. So 60% cited tax, 50% energy, 44% regulation, and only 16% availability of finance.
It is true that, while lending to the SME sector has grown over the last 15 or 16 years, it has not kept pace with inflation. Had it done, the stock of lending to SMEs would be probably about another £10 billion above where we are today; it would be £62 billion and we are at £52 billion. For larger corporates—those with a turnover of more than £25 million—it has kept pace with inflation and the growth has been much stronger.
Q97 Lord Eatwell: I thought that your discussion on the risk weights was very helpful, Mr Postings. Thank you very much indeed. If we have a bank that is lending to an insurance company, or some other major finance company, and that finance company is then lending to SMEs, what is the bank’s risk weight in that case?
David Postings: I do not have the numbers with me, but we can easily get those for you.
Lord Eatwell: My guess is that it would be significantly lower.
David Postings: Yes, it would be lower. Just to let the committee know, in the past, I have both lent to SMEs personally for decades and been chief executive of a company that lent to SMEs and was funded by banks, so I have personal experience of how this works. The markets work well in terms of funding secondary funders. It is good for competition. It is good for customers, because the service can often be different. The risk appetite can be different. There is definitely a regulatory overhang on banks that pushes them to be thoughtful about credit exposure to SMEs.
Lord Eatwell: It might be good for customers and so on, but not good for systemic risk.
David Postings: It depends on the concentration. At the moment, £60 billion out of £600 billion does not strike me as too great. That is the UK position. If you were to look at the United States, where it is more developed, it could be more of a worry there. Some of the comments that have been made in the light of the collapse of First Brands are probably worth bearing in mind, as are the comments around the stock market in the United States. We have a very different ecosystem here. I would not say that there can never be any contagion, but it certainly operates differently here.
The Chair: The committee’s interest is in whether the rules on capital and other regulations are such that the balloon has been squeezed and has grown into the less regulated sector, and that what we are seeing here is regulatory arbitrage, although I do not want to anticipate the conclusions of the committee.
Q98 Lord Smith of Kelvin: We have heard that the decline in bank presence on the high street—the local manager and local business relationship—inhibits SMEs’ abilities to access finance. Some say that that has to do with the cost pressures of having places in the high street. Others say that it is regulation, although there are examples such as Handelsbanken. I would be interested in your view. You mentioned that availability to finance as an issue was a very small percentage, so you may dismiss this totally, but can we get back to the high street and more relational finance?
David Postings: I grew up as a relationship manager, so I have been that person. Relationship management still exists, but generally for larger businesses. For those with a turnover of under a couple of million pounds, which is the vast majority of businesses, it is uneconomic to provide that face-to-face relationship these days. It would tend to be done through call centres and online. The returns just are not there.
Some people take a different view—and you mentioned one—but even they do not tend to deal with very small businesses. It is hard to see how a high street presence would really make a difference. That stopped being the case 30‑odd years ago, frankly. I managed one of the very last high street bank branches with that sort of presence in the early 1990s. We are a long way past that. SMEs are well served for their day-to-day needs. Contact centres are not the same as face-to-face, and I would not try to pretend that they are, but they are effective.
I want to try to bring to life for the committee how an SME might think in that part of the market. What are the reasons why SME lending has not grown? One is that, if you are faced with your bank having a very high capital charge and, therefore, a very high APR for the borrowing that you want to take on, assuming you do want to borrow—and a significant minority of SMEs do not—the best way would be to think about taking some mortgage finance and putting the cash in as a director’s loan. The arbitrage there on capital is massive. The capital risk weight is secured.
We looked at a £100,000 mortgage as a comparison, which you might be interested in, with a 75% LTV. The difference is that the business loan that I described is unsecured to a limited company, whereas this is secured on a property. The risk weight is 35% for a challenger bank, and 17% for a high street bank, versus, as I mentioned before, 55% and 65%, and 31% and 44%. The capital allocated to that, and, therefore, the price, is much lower. If you were putting £10,000 or £20,000 into your business, I would argue that quite a few small businesspeople would follow that route rather than taking a loan out.
Lord Smith of Kelvin: That is very helpful, coming from a relationship manager.
Q99 Baroness Donaghy: My concerns are at the bottom and at the top. At the bottom end, talking more about the micro business side, are you satisfied that the banks really have opted out, and that they have nowhere to go if we are going to look for an improvement in the economy? This particular question is not about regulation, but, if we are going to improve growth in the economy, there needs to be some kind of concierge system for the small and micro business, if it is not going to be at relationship manager level. I fully accept that that is never going to come back. It is just a romantic notion.
Where are we lacking in this country in terms of encouraging growth in the micro companies, some of which could become extremely important to the economy if they are given the right encouragement?
Just to give you time to think about this, the concern that the committee has at the top end is the increase in risk of the increased proportion of private sector funding. Is bank competition being threatened by that growth? Is the economy being threatened by the uncertainty of where all this capital is coming from and how it is controlled? That was my top-end question.
David Postings: I will do my best. At the small end, people are able to access finance. There are government guarantee schemes, which are very successful, for businesses that have very limited assets and trading history. All banks will offer pretty small-ticket loans. They are expensive, though, so not everybody wants to avail themselves of those, but finance is definitely available. It is worth remembering, though, that very few businesses want to scale or ever do. There is a big debate about scale-up finance. Even the ScaleUp Institute claimed that only 34,180 businesses are truly going to scale. We can sometimes get a bit confused about the desire of small business owners. Very often, it is to earn a living and be independent, but they do not necessarily want to be the next Amazon.
I do honestly think they are well served. There has been a huge increase in competition since the financial crisis. There are more lenders offering more products than ever before, and the challenger banks now have a bigger share of that market than the traditional players.
Baroness Donaghy: With respect, that is not how they feel. They are feeling pretty grumpy.
David Postings: I can only go on the results of the DBT survey, which said that 16% think that the availability of finance is an issue, but 84% did not, so it does not demonstrate that at all. You will sometimes hear from people who are disaffected and feel that they cannot get finance, but it is quite often because their proposition is not one that is capable of being financed. People’s perception of their business is often far rosier than the reality when you look at their balance sheet or their trading performance. Saying no to people is as much a part of lending as saying yes; otherwise we would be debating debt burdens on small businesses in the same way.
At the top end, it is difficult for me to formulate a response, really. What I would say is that we estimate private credit in this country to be at £60 billion. It is growing. What you see there is that people believe they can make a return in that market and can manage risk effectively, and that the institutions that fund them believe they are sufficiently creditworthy to be funded. At the scale that it is at the moment, it is something that the Bank of England is keeping an eye on, as we all should. You are right to ask the questions, but I do not sense that, at least in the UK, we have a major problem.
The Chair: That may be true, but I seem to recall that AIG and Lehman created a crisis that began in the US and arrived here. Should we not be a bit more concerned about the growth of private credit in the US?
David Postings: Yes, possibly, but I am afraid that I do not have the stats on that.
The Chair: On Baroness Donaghy’s point about people being grumpy, it might be worth having a look at the evidence that the committee got from the Federation of Small Businesses, which was pretty grumpy.
Q100 Lord Vaux of Harrowden: I have two questions. First of all, just to follow up on an answer that you gave earlier, you mentioned the senior management regime “weighing heavily”. Perhaps you could explain a bit more about how the senior management regime is weighing on lending to smaller businesses.
Secondly, you have talked about challenger banks and how they are lending into this market well. In the previous inquiry that we did, we heard evidence about the MREL regime and the cliff-edge elements of that acting as a brake on the growth of challenger banks, and I wondered whether you had any comments on that as well.
David Postings: The MREL regime has been altered recently, which is a really positive thing. If those thresholds could be indexed, that would be great, because they will be eroded by inflation over time. It has definitely made a difference to the ability of those lenders to keep going. A large part of that challenger bank expansion has been secured against property, and so things such as buy-to-let will be included in that growth. I am sorry, but I have forgotten the first part of your question.
Lord Vaux of Harrowden: I was just asking you to expand a bit more on your comments about the senior management regime.
David Postings: It is part of the overall mindset inside an organisation. When you are individually subject to something such as that, it makes you cautious. It is inevitable. It makes you think very carefully about whether the outcome is going to be a good one, and so people become less willing to take risk in all forms. It has definitely had a dampening effect.
Lord Vaux of Harrowden: Is the lending to SMEs situation not more about the fact that many of them are simply not a lendable proposition at economic rates, and, as you mentioned, that the returns just are not there?
David Postings: I see the thing as a whole system issue. There is reticence on the part of the business community to want to borrow at the smaller end in particular, and I can outline the reasons for why that is. The capital allocated to those loans has risen significantly over the last 15 years, so it is hard to find returns. That has pushed the price up, which has been self-reinforcing. Then you have the conduct environment sitting over that, which has created a certain degree of risk aversion inside the organisations. That combination of things has created a situation where we are seeing weak demand and weak growth.
What I would say, though, is that, in the first half of this year—and it may be a bit too early to call summer on this—there was a 29% increase in SME lending from the first half of 2024 to the first half of 2025. That goes to the point that the organisations I represent definitely want to help the Government with their growth targets. They do want to lend to SMEs. Having more focus on capital and stopping the rise in capital allocation will help that.
Q101 Baroness Noakes: What would be your plea for the Government to change in order to increase lending to smaller businesses? You mentioned the change in the capital regime. What specifically would you say to the Government is the best way to get more money fuelling growth in the economy via the SME sector?
David Postings: We submitted our plan for growth, which we shared with the committee. A few highlights include indexing thresholds for MREL and looking at the capital stack, in particular things such as the countercyclical buffer, which, at 2% in this country, is out of line with every other country that we can find, certainly in the G7. The FPC review of the capital position for banks is a really important piece of work, which the Government can influence, although the FPC is independent. Things that allow banks to support SMEs, such as capitalising software, are in our plan for growth, but capital was the main one, without doubt.
Baroness Noakes: Is there anything in there on the difference in the treatment between smaller and larger banks? I know that you represent all banks, but the weight is in the larger banks in terms of volumes of lending.
David Postings: In terms of flow of lending, it is the challenger banks that are doing more to SMEs now than the larger banks. It is about 60:40.
Baroness Noakes: Is there anything specific?
David Postings: Not all my members are banks. Of my Commercial Finance members twenty‑six of them, so 8%, are not traditional or challenger banks, but what you might describe as private credit firms. They are smaller organisations that provide finance, whether it be invoice finance or commercial finance. They would all say that the capital stack is too high and too cautious, and does not take account of the risk performance over the last 10 to 15 years.
Q102 Lord Lilley: Sheila may just have asked my question, but what changes in the regulatory regime would you recommend that would increase the availability of finance without increasing the systemic risk of the system? You have given an analysis in answer to that already.
David Postings: I have tried. Capital is the main thing. We are doing a piece of work at the moment, which I will share with the committee once it is completed, looking at capital, both from the top-down perspective of how we stack up against other jurisdictions around the world, and then individual asset class by asset class, be that mortgages or agriculture. That will probably be helpful to the committee when that is finished. It should be very soon.
The Chair: It would be really helpful if you could let us have that.
David Postings: We will.
The Chair: I do not know when it might be available, but we are hoping to report certainly early in the new year.
Q103 Lord Hollick: Anecdotal evidence suggests that the requirement to provide personal guarantees was a major deterrent to a lot of small businesses. Is that the case? Are they required by most lenders?
David Postings: The evidence that we have is that about a third of lending has a personal guarantee. They are provided only against limited companies. Sole traders are personally liable anyway. In the two years from 2022 to 2024, they resulted in only two house repossessions as a result of action taken under the guarantee. We have worked very hard to ensure that the process of taking a guarantee and the explanation is very clear across the industry, so we have responded to the challenge there.
As somebody who has lent money most of my adult life, what I would say is that a personal guarantee is incredibly helpful for bringing a director to the table once a business fails. Without that, it is very difficult to get them to come back and talk to you, and to help bring in the assets to repay the debt. It can help HMRC in that process too. By bringing them back to the table, all creditors have some benefit.
I do not believe that guarantees are a bad thing at all. They are a good thing. They crystallise people’s thoughts. They certainly do not prevent people from borrowing. People are often offered two prices—one with a guarantee and one without. Most people plump for the guarantee and the lower price on the back of that.
I understand people’s concerns, because it is a very real liability, and a small business with very limited assets can be concerned about that. I would contrast it with sole traders, which are partnerships. They are wholly on the line anyway. The ability for somebody to set up a limited company and then walk away and phoenix it is something that we should be really worried about in the country. Having a guarantee there helps prevent some of those failures happening in the first place, because people think twice. That is my opinion.
Q104 Lord Eatwell: We have been talking about lending, but what the SME sector really lacks is investment in equity. The British Business Bank claims that it is trying to encourage banks to lend more to venture capital funds, which then do the equity lending. Are we seeing any increase in funding of venture capital funds through the banking system?
David Postings: I am afraid that I do not have the statistics on that. If we think, though, about the definition of SME, with 99.2% of all SMEs having a turnover of less than £2 million, they do not seek external investment or want to dilute their shareholding very easily.
Lord Eatwell: It is the secondary funding activities that we are really looking at.
David Postings: That is a small proportion of the overall total.
Lord Eatwell: It is a very important one.
David Postings: It is. You are right. I do not have any statistics on exposure to venture capital funds, but I am sure that we can find them for you.
Lord Eatwell: That would be very helpful. Thank you.
Q105 Baroness Bowles of Berkhamsted: I have two questions. First, how is lending against assets such as intellectual property coming along as we want to target the growth in technology? Is there a growing appetite for that or is it restricted only to other types of intellectual property, such as patents?
David Postings: I mentioned software capitalisation earlier in passing. Banks are restricted as to what they can capitalise and have in their capital stack. As a consequence of that, they are cautious about intellectual property and software assets in the companies that they fund as well. It is a real debate, though, because, increasingly, as you quite rightly point out, technology and the value in it outstrips things such as the desks that we are all sitting at, whereas that would count as a tangible asset. I do not have the statistics on it, but lenders are undoubtedly cautious about that.
Baroness Bowles of Berkhamsted: Whose call is that? Is that the lenders’ call or the regulators’ call?
David Postings: The regulators decide what the banks can capitalise, and the banks then adopt their own policies regarding their risk tolerance. The problem in a situation where a company goes to the wall is that intellectual property can often dissipate into not very much value at all. They will undoubtedly always be cautious about that and about software capitalisation.
Baroness Bowles of Berkhamsted: It underpins their market, of course, rather than if they did not have such assets.
David Postings: Yes, but it is an intangible asset, so it is very difficult to ascribe a value to it. They will ascribe some, but not necessarily the full value.
Baroness Bowles of Berkhamsted: We are probably going to have to grow up a bit in that. The other question that I had was about using intermediaries, especially if the lender is going through an insurance company. I know that you do not, as such, represent the insurers. They have their own organisation. Big insurance companies have a lot of fancy footwork going on in derivatives and assets, and things that they can do. Is there a systemic risk there that we should be concerned about?
David Postings: I am not aware of any systemic risk in the insurance market, but I am not the right person to comment on that.
Baroness Bowles of Berkhamsted: In terms of where they are engaged in the lending process, is that something that should be looked at?
David Postings: I do not view them any differently from some of the other non-bank providers of finance. They have to have a risk policy and work out where their risk tolerances are. They are regulated, so they have to allocate capital against those risks. Some of the businesses that provide finance to SMEs are not regulated in that sense. Because they do not raise deposits, they do not have to have a capital ratio, although their lenders will insist on their balance sheet having a certain level of robustness.
Baroness Bowles of Berkhamsted: That is why I was curious as to why the insurers should perhaps have to raise less capital against things than banks.
David Postings: I honestly, genuinely do not know whether they have to raise more or less capital for this purpose, but I assume that they are doing it because they make a better return than they could through traditional lines. That is why they do it.
Baroness Bowles of Berkhamsted: I am just curious about the model. Maybe we will have to have other people in to answer the questions.
Q106 Lord Sharkey: We have heard evidence that suggests that established and sophisticated private credit firms increasingly prioritise providing finance to large corporates over SMEs, and that this may represent the start of a gradual reduction in the willingness of the credit markets to provide SME finance. Do you agree with that? If you do, is there a remedy?
David Postings: I do not think that that is necessarily true. My sense is that the growth is coming at the larger end, because that is where the demand is and where the bigger quantums are. Many private firms provide finance to SMEs, and always have done, whether it is invoice finance or asset finance.
Some of the large hedge funds own asset finance companies and brokers, so they have a captive broker. They can introduce their own business to themselves and write the book. They put some of their own cash in. Maybe some of their cash comes from an insurance company that they own and they borrow some from a bank. That is how they fund that asset. That is directed, eventually, to an SME to buy a second-hand dumper truck or digger, or something like that. They are in that market as well.
It is very competitive. The Finance and Leasing Association has a long list of quite small members that provide those sorts of facilities to SMEs. That specific asset finance area has been growing quite significantly.
The Chair: David Postings, thank you so much. That has been a really helpful session, and we particularly appreciate the breadth of experience that you have had as a bank manager and on to greater things. We would very much like to see the further information that you have said you might be able to let us have as part of this inquiry. That concludes this session.
