Less than a month after Stephen Hester’s surprise announcement that he would be stepping down before the bank was able to refloat itself, RBS have come out with another shocker. Some time ago the bank brought in external management consultants to assess their lending policies and procedures; the review has unearthed an extra £20 billion that the bank could lend.
This has been found as a result of a reassessment of risk parameters in the small business lending department. Unsurprisingly the policies were tightened up following some of the more optimistic lending decisions taken before the financial crisis, and the ratios between cash on deposit from small and medium enterprises (SME) and the amount lent out to SME’s has aggressively shifted. Prior to 2009 the ratio was roughly 1:1.3; it currently stands at 1:0.8.
If the bank was to lend this extra £20 billion to SME’s then how would that extra risk be perceived by the markets? If, as is widely assumed, the government push for the bank to be refloated before a 2014 general election, how much damage would this extra risk do to the team trying to raise investor interest? All of this raises further questions about Mr Hestor’s departure and, regardless of how much the RBS board deny it, how much control over decision-making is held by politicians as opposed to bankers? I for one am finding it very difficult not to be just a little cynical.