Banks fight their corner following recent scandals

With the current debate over lending policies in the spotlight, banks are defending their position by claiming the public don’t understand the narrow margins that banks operated on. A bank’s lending division can be in trouble if just one in 100 loans went bad in the SME sector and the difficult financial climate is making it difficult for banks as well as their customers.

Banks themselves may have been instrumental in the public’s poor impression of them. Promotion of doubtful hedging products turned out to be a prelude to an announcement by officials of an investigation into overselling into the SME sector. And some banks have an attitude bordering on arrogance in claiming an understanding of how small businesses operate.

Some SME’s have been under pressure from high bank fees and from purchasing inappropriate products. It is apparent that banks have been involved in dubious selling practices that have seen some firms over-committed to bank loans and insurance products. Some SME’s have been driven out of business and even with new rules from regulators, the changes will have come too late for some firms.

Unfortunately, even where businesses are caught up in the overselling scandal, loan obligations must be met until investigations by officials are complete. In a compromise move, banks have made a commitment not to call in loans where accounts are in arrears, except from what banks refer to as unusual circumstances which would apply to specific customers.

Another difficulty is that not all banking products are being treated equally in the government’s investigation. Some are being viewed as more serious and so any possible compensation may take longer or may not even occur as banks negotiate remedies that may be due to SME’s sold inappropriate products.