IBS Journal October 2016
39
(750 million people vs 60 million in the UK) was too beneficial to relinquish.
As we’ve already seen since 23rd June, a number of lenders have faced some challenges following the vote. From our perspective, we are still very much committed to continuing to grow our loan book and support UK businesses during these times. We are one of the best capitalised banks in the UK and, given the careful credit decisions we have made thus far, are in a strong position to continue leading at a time when many banks are retrenching from the market. This creates an opportunity for us; since the vote, we have closed over £50 million in deals (including a £19 million deal with restaurant chain Leon), and in fact, the day after the vote, we had two opportunities come in as a direct result of larger banks pulling out of deals.
IBS Journal: The Competition and Markets Authority (CMA) has recommended the introduction of a new API tool which will allow SMEs to view a bespoke comparison of transaction charges they would have incurred over the past year. What is your take on this?
RK: The key issue with a price comparison site is that it is trying to resolve adverse pricing in a market where the fundamental problem is lack of supply. If you push down prices in a supply- constrained market, you will have even less supply, therefore worsening the situation. What’s more is that price comparison websites tend to ‘commoditise’ the products they compare and encourage market participants to compete on price, ultimately leading to a computer-says-no approach.
That is why we were glad when the CMA acknowledged that a price comparison website is not an appropriate solution for larger SME loans which need to be tailored to the individual characteristics of the business at hand. However, the fact that finding a solution when it comes to larger loans will now be passed to the Treasury who will only look to review whether the proposed remedies have worked in two years’ time, is very disappointing news. Thousands of SMEs are seeking finance to grow and were hoping this investigation would finally deliver a solution to a problem that’s been going on for decades.
IBS Journal: The CMA also recently announced proposals to reform the retail banking landscape. Where do you stand on
this? RK: In our view, the CMA’s report has fallen short and failed
to deliver solutions to a number of the key issues it identified, in particular those facing SMEs seeking larger loans. The CMA explicitly stated in its report that a combination of factors make it difficult for new entrants and smaller banks such as OakNorth to effectively compete. Yet despite this, the solutions it’s provided for SME lending are limited to unsecured loans of up to £25,000, so won’t address the issues facing SMEs that need secured or larger loans.
The fact that the CMA is simply going to pass the buck to the Treasury, who won’t look to launch their own investigation until two years from now, is extremely disappointing. There are millions of SMEs that are struggling to secure growth capital who may now need to wait up to four years for the situation to improve.
This is exactly the same approach the CMA took following its investigation into the competitive impact of replacing the Bank Levy with the Corporation Tax Surcharge. Instead of getting on the front foot and trying to address the competitive issues with larger SME loans now, it is choosing to wait and see if the benefits from its proposed remedies for other products will have a ripple effect.
The CMA should work with the Treasury and the regulators (PRA and FCA) to create a more favourable regulatory environment for new entrants such as OakNorth. Unlike large banks, we do not pose a systemic risk so should not have to adhere to the same capital and regulatory requirements as them. The Corporation Tax Surcharge should be removed for smaller banks as this will genuinely move competition in the right direction and create the ‘revolution’ in banking the CMA wants to see.
IBS Journal: Looking at the year ahead, are there some milestones we should be looking out for?
RK: We recently celebrated our one-year anniversary since we began trading and we’re on track to break even financially next month, which is a pretty significant milestone considering we’ll be only a year old. It has been a phenomenal year for OakNorth – our loan book including deals in documents now stands at around £2,000 million and the aforementioned deal of £19 million with Leon to enable the business to open 50 new sites and create 1,000 new jobs over the next four years. Hopefully over the next year, we’ll have the opportunity to work with other fantastic entrepreneurs and businesses and help them achieve their growth ambitions.
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