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The UK’s banks have been accused of holding back the recovery by failing to lend enough to smaller firms. Phillip Bate, who has worked with SMEs since the depths of the financial crisis, offers a stout defence of Lloyds Banking Group’s record in this area

You joined Lloyds’ business support unit (BSU) in December 2008, not long after the financial crisis struck. How did that come about?
The financial crisis was gaining traction at that point, which was why the role became available.

The number of employees in the department had increased rapidly and I think what secured the job for me was probably the fact that I was studying for the CIMA qualification, so the people who recruited me could see that I was training to become a management accountant.

I was in the BSU for three and a half years, dealing with customers ranging from small and medium-sized enterprises all the way up to larger corporate entities including hotel groups, leisure complexes and manufacturing companies – all of which needed additional support.

We also managed customers from HBOS, which merged with Lloyds TSB in 2009 to become Lloyds Banking Group, so there was a steep learning curve in terms of systems and processes.

The BSU manages customers in financial distress. When I was there, these customers were coming to the department for a variety of reasons, some directly linked to the downturn.

Others were having difficulties associated with diversification, usually into property. Hotels, for instance, were particularly susceptible to any decline in consumer confidence and discretionary expenditure.

The main aim of the BSU is to spend more time with customers, with a clear focus on turning a business around and restoring it to financial health.

To help facilitate turnarounds we consider a wide array of strategies, where the starting point is always to talk to the customer about their business plans and forecasts.

We might then involve external consultants such as interim directors, FDs, property specialists or external accountants to conduct business reviews. Lloyds has had this department for many years.

Even in the good years, the bank retains key staff with the relevant skills and knowledge in the BSU because there will always be businesses that struggle, even when the economy is going well.

Bank lending to SMEs is a key element of putting the economy back on track. What attracted you to this part of the business?
After a short time in the BSU credit team, I was promoted to a job in mainstream credit, assessing lending for both new and existing customers.

This is an exciting and dynamic part of the bank, which has enabled me to put the skills I’ve learnt through CIMA into practice and to help support businesses in the UK.

I am part of a team with responsibility for customers in the south and west that have turnovers of up to £5m.

In the risk division you underwrite these companies’ credit risks. How do you work with front-line relationship managers and what targets or quotas do you use?
In SME banking we are open for business in all sectors and a request is never declined just because we have reached a certain quota. Front-line relationship managers (RMs) have targets for new lending, but in general these are not sector-specific.

The bank has a credit policy for different sectors in terms of what we’re looking for and the RMs work within that framework, using their skill and experience, to assess each proposition.

The usual process is that an RM sees the customer and then writes a report requesting new bank facilities that is sent through to me. I assess the proposal and, working together with the RM, decide whether it’s a proposition that we can support.

The first thing I do when assessing a new proposition is to analyse the firm’s annual accounts, along with its forecasts, management information and business plans, to get a firm grip on how the entity has been performing.

I have developed a spreadsheet where you input a standard set of annual accounts and it confirms what cash the business has generated or spent and reconciles this back to how it has been funded – eg, bank facilities, directors’ loans, asset finance, invoice discounting. Without my CIMA training this would not have been possible.

This tool gives us a great insight into what the business has been doing and what its underlying performance is. For example, we may see a request where the business has made a profit of £200,000 after tax, but if it’s a growing business we would need to assess how much of this profit has been used to fund increases in working capital and other balance sheet items before assessing the amount of cash left for debt servicing.

How do you inform customers when you have to turn down a loan request?
If we are in a situation where we are unable to support the requested lending I always call the RM and talk through my concerns.

The RM will then meet the customer to discuss the bank’s view.

A declined lending decision is never taken lightly by the bank and there is always a lot of thought behind it. The reasons are always communicated to the customer and, obviously, if there is a way forward, that’s explored as well.

In SME banking we agree more than 80 per cent of all loan and overdraft requests, which is in line with our long-term average. So our support rate hasn’t declined and we haven’t become more stringent in what we require.

Lending to SMEs fell in the industry overall last year, but lending to SMEs in Lloyds’ core business grew by 4 per cent. The government has two schemes to boost lending to SMEs.

The first is Funding for Lending, which supports discounts of up to 1 per cent on new loans. Lloyds Banking Group was the first bank to access it and to date has committed £24bn of gross lending through the scheme.

The other scheme is the Enterprise Finance Guarantee, which supports businesses that need funds to grow but don’t have security to offer.

The government will provide a guarantee for 75 per cent of the unsecured amount.

We have seen a great take-up for this initiative: to June 2013 Lloyds Banking Group had offered 5,600 loans totalling £445m. That’s more than a quarter of all the loans across the banking industry.

Do customers who have had facilities declined have the right to appeal?
When we write to customers to explain why they have been declined, we also give them details on how to appeal through an independent process, instigated in 2011 with other high-street banks, that most of them can use.

Customers have 30 days from the date of the letter in which they can appeal, either verbally or in writing. We are committed to assessing 90 per cent of appeals within 15 days.

The most common reason for declining an application is that our assessment finds that the business would not be able to afford to service the interest and repay the loan.

A colleague of mine in the appeals team tells me that we do agree to lend in about 20 per cent of appeal cases.

Is the bank focusing on winning new business or on lending to existing customers?
Lloyds has the same appetite for lending to new customers as it does for existing customers. I am sent many requests for lending to new customers and these are always great to see.

RMs have local lending authority up to a certain level. For senior managers that can be up to £500,000. This means that, for smaller requests, decisions can be made quickly, locally and without being sent through to my department.

This is a key differentiator for Lloyds Banking Group and one of the reasons why we are winning new business. The bank has been on a drive to increase the amount of deposits it holds, so we are also winning new business that is going to increase the amount of deposits – a key driver for Lloyds.

In our most recent annual results we announced that in our core lending book we had a ratio of one to one in terms of loans to deposits. This makes us one of the most stable banks on the high street.

What was your route into finance?
After studying for a degree and then a master’s in mechanical engineering, I still wasn’t sure whether I wanted to follow that career path, having become interested in the finance modules I’d taken on these courses.

So after graduating I took a job at telecoms group Orange in its finance division, working in the corporate card relationship management team in Bristol.

My initial plan was to earn some money and then go travelling, but after a few months I was offered a full financial scholarship programme, which led me to start my career there.

Given a choice of accountancy qualifications to study for, I opted for CIMA’s because of its industry-focused approach. I started that in the autumn of 2006 and took my last exam in March 2009, having had a couple of exemptions because of the content of my degree.

How did you end up at Lloyds?
I moved across to Orange’s financial reporting team in August 2006, where I remained for about a year. I was delivering financial reports every morning during month end.

It wouldn’t be uncommon for me to still be there until the early hours of the morning and then back in at daylight the next day. I soon realised there would be more opportunities for me in the financial services industry than in the finance function of a company, which was why I moved across to Lloyds, also in Bristol.

I started as an assistant manager in the capital funds department, providing accounting support for the group’s corporate treasury division.

This entailed managing large deposits and loans. At the heart of the job was business partnering, which is an important part of the CIMA programme.

There were two of us in the team in Bristol, with most of the treasury team working in London. My manager and I were responsible for working with the capital funds team to provide accounting support.

It was a varied job that, among other things, included a part in the Lloyds dividends payment process: we brought together funds and paid them off to be distributed to the shareholders.

In addition, we liaised with the tax department and oversaw the groups’ tax payments to HM Revenue & Customs. When I joined the team this process required streamlining, so I worked closely with the tax department to bring about a new process.

How did CIMA help you?
What I was learning from my studies I was putting into practice in my job and vice versa. That is why, for many people in Lloyds, CIMA is a natural fit.

At that point I was in a technical role, accounting for swaps and derivatives. Although I was enjoying that, I identified through my studies other areas of finance that I enjoyed more, such as analysing financial accounts and performing ratio analysis.

As a result I sought out an area of the business where I could put such skills into practice. I was relating the bits of the qualification I found interesting and trying to find a job that would allow that to happen.

I realised that I wanted to work with businesses, understanding and interpreting their accounts, more than I did a straight accounting role, so I moved across into business support.

I never envisaged that these roles would become so high profile. When I joined Lloyds I didn’t have a specific career plan. I assumed that I’d stay in a traditional finance role.

But both of my most recent two jobs are outside the traditional finance community, which required a leap of faith.

But the CIMA qualification gave me the skills to be able to make that jump. It has enabled me to progress up the learning curve and do a job that may otherwise have required a long career in banking beforehand to build the financial assessment skills required.

The financial services sector has been through an exceptionally difficult period over the past five years. Would you recommend it to other CIMA members and students as an industry that still provides good career opportunities?
Yes, it has been a difficult time, but it is a great industry to work in, with great prospects. Is it any more risky than working in a smaller company? Probably not.

Statistically, there are always going to be plenty of jobs out there in such a big industry. I see finance in banking as a good fit for people pursuing their CIMA studies.

My advice is to review what you’ve done in your studies, look at which areas you enjoyed the most and then try to position yourself for that role.

Naturally, the larger the organisation, the more opportunities there will be to move between departments and take on a wider variety of work.

I wouldn’t worry about moving out of a traditional finance-based role into a broader company, because the skills you have learnt will still apply and help you to stand out. You will be able to bring a fresh perspective.

Photo: James Pfaff

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