Bank support for small business turnaround

The ongoing political scrutiny of the treatment of distressed small business customers by the Royal Bank of Scotland (some background here) led to a letter from the Treasury Committee on 27 February 2018.

Amongst other things the committee asked RBS to confirm whether it supported the Principles for Best Practice in UK business support banking promulgated by the UK’s Institute for Turnaround.

The principles are:

i.  The primary focus of Business Support Units is to protect the Bank’s capital by working consensually with customers to promote and support viable recovery strategies:

• Business Support Units will work openly and constructively with customers, with the aim of returning the business to viability in a timely and cost-effective manner, wherever achievable.
• The need for Business Support Unit involvement will be kept under continuous review.

ii.  Business Support Units will treat customers fairly, sympathetically and positively, in a professional way with transparent processes and procedures.

iii.  On transfer to a Business Support Unit, the Bank’s concerns and the proposed next steps will be clearly communicated to customers.

iv.   Business Support Units will ensure that any formal property valuations required will be undertaken by independent advisers on the Bank’s panel.

v.   Business Support Units will seek appropriate fees and margins taking account of the customer’s financial circumstances and ability to pay:

• Fees and interest margins will be appropriately priced to reflect the risk, the additional management time required and the financial circumstances of the customer. These will be set out in writing, will be discussed with the customer and agreed with the customer wherever possible.

vi.  Business Support Units will manage complaints in line with clearly defined policies and procedures:

• The process for making a complaint will be clearly set out ensuring recognition and a timely response.
• Customers should always feel able to complain (and know that any complaint will be treated fairly in accordance with published complaints protocols)

vii.  Occasionally equity stakes in a customer may be acquired through a debt for equity restructuring. Business Support Units will handle equity stakes in customers under their management in the spirit of the ‘primary focus’ – to protect the Bank’s capital by working consensually with customers to promote and support viable recovery strategies.

viii.  Business Support Units will monitor their turnaround statistics with a focus on returning customers to a normal banking relationship.

For some time Insol has provided guidance for the workout of large syndicated loans (discussed here) but these principles, supported by  Lloyds, HSBC and Barclays, appear to be the only guidance for support of small business lending.

Other posts about the RBS/GRG saga:

• PAG v RBS: Calling for Valuations – A final outcome
• Loan workouts: insights from the UK
• Bad Reputation? …Reputational issues for lenders and their advisers
• The Tomlinson Report and its Aftermath