Insider Media Limited

One of the country’s leading bankers has suggested that commercial property finance will remain hard to come by as the major banks have no intention of returning to the "reckless" lending climate of several years ago. Speaking to Insider in Birmingham, Stephen Hester, group chief executive of the Royal Bank of Scotland, said banks remain circumspect with regard to commercial property lending.

"Banks have been extremely badly burned at the risky end of property. They were reckless and now are being more conservative and so the standards we would have been used to for real estate lending three or four years ago are not applied now and won’t be applied any time soon," he said.

"But I would say that the first issue is that people can’t find tenants. There is no confidence when someone puts up a building that someone will pay good rent at the end of it.

"If there was massive demand for take up you could do pre-lets and sales and de-risk the development decision but in a difficult economy there isn’t that confidence.

"We just can’t have the risk profile we had once and I think that’s true of most banks."

On the wider issue of providing funding for SMEs, Hester claims the bigger issue is a lack of confidence amongst companies rather than a lack of willingness amongst banks to get their wallets out.

"It is incontrovertibly true that in general banks would like to lend more than their customers are asking for. It is certainly true of RBS. Banks are approving pretty much the same percentage of loans as they did in the old days. 85 per cent of every small business that asks us for a loan we say yes to," he said.

"It’s all true that people are paying down their overdrafts and not asking for more. That’s a voluntary action."

"The issue is more about business confidence than it is about banks’ willingness to loan.

"However, the law of big numbers means that even if that’s true of the majority of businesses it doesn’t mean that there isn’t a significant number that are finding it difficult and I’m completely prepared to believe that’s true."

Hester also admits that it is taking longer before businesses get a funding decision as due diligence processes have been tightened up by banks.

"Whenever there are problems systems tighten up," he said. "I’m entirely prepared to believe that there is an element of process that has gone too far and which we the banks need to work through. Part of it though was that three or four years ago banks were lending too much and in the wrong way."