"Financing projects from £50,000 to £100 million"

Co-op halts business lending to address capital shortfall

Co-op halts business lending to address capital shortfall

The Co-operative Bank is to halt lending to small businesses while it plugs the hole in its capital requirements following the downgrade of its debt to 'junk' status by Credit Ratings Agency Moody’s.

The bank is reportedly seeking advice from the new Prudential Regulation Authority (PRA) about options that could see it split into good and bad banks to restore the health of its prime bank – a model that has already been proposed for taxpayer-supported RBS.

Moody’s said that the bank’s toxic debt ratio had risen to 10.9% in 2012, a third higher than 2011. Much of this has been attributed to bad commercial loans stemming from the takeover of the Britannia Building Society in 2009.

The Co-operative Group is already looking to sure up the bank’s assets by selling its life assurance business to Royal London.

The deal has been in progress for almost two years, after regulatory hurdles meant that the Co-op needed to secure a waiver from the erstwhile Financial Services Authority to make a profit on the unit.

The £200 million that could be raised from a deal should help to nudge the bank’s capital closer to the 7% required by the Basel III agreement – but it could constitute only a fraction of its capital shortfall, which is thought to be well over £1.5 billion.

The bank said that commercial finance applications already under consideration would be processed in the normal way, but new customers would have to look elsewhere for the imminent future.

The news is a setback to the government’s hope that “challenger” banks would continue to compete with high-street banks.

Business Secretary Vince Cable has spoken in support of the additional sources of credit being made available to small UK businesses, which includes banks such as Aldermore and Metro Bank (read more).

Friday, 24 May 2013 11:06
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