As the financial services landscape continues to settle following the tumultuous events of recent years, banks are jockeying for position, trying to carve out a place in the market and make it their own. Tim Hinton, managing director of SME and mid-markets banking, discusses with Andrew Tunnicliffe why the UK’s SME sector is somewhere Lloyds Banking Group has gained a foothold.
Historically, the link between the financial services sector and political world has, while naturally intertwined, been one of mystery to a certain degree. Politicians the world over would go to great lengths to deny wielding influence over financial markets. At least, they would before the financial crisis a few years ago.
Today, they're the first to tell us of the steps they took to right the wrongs of the financial world; some more than others, of course. Yet, for as long as there has been business, commerce and even a currency, politics and finance have and will always be linked.
The financial crisis, however, raised the level of involvement from the political elite far beyond anything seen before, and it led to the greater population demanding it more and more. In the UK, Lloyds TSB was one of the larger casualties of the crash, ultimately leading to its break up. Since then, the bank has restructured, rebranded and repositioned itself in the market.
Reading like the bullet points of a political party's manifesto, the group's 'Helping Britain Prosper Plan' makes seven commitments to the UK. A central pillar to that plan is the support Lloyds wants to offer the UK's SME sector.
"There are various aspects to 'Helping Britain Prosper', from retail through wealth management, helping people save for their retirement and so on, but SME and business banking is a critical area of focus for Lloyds and, therefore, it is a central pillar of that plan," says Lloyds' Tim Hinton, managing director of SME and mid-markets banking. "We're very passionate about the SME businesses in the UK and, therefore, we make commitments. We make them around fairness and transparency. We make commitments about companies that may go into financial difficulty, about how we will try and help nurse them back to health."
SME the people
With more than five million SMEs in the UK, they form the backbone of the British economy. Much like in other developed and even developing countries, a thriving SME market is good news for the prosperity of the state in general. Yet, says Hinton, the needs of those businesses are very similar regardless of where you are. "The one thing I've seen wherever you are in the world, is the way SMEs operate; the things they're looking for from banks and other partners are largely the same. You can be in China or India, Hong Kong or Taiwan - the way an SME goes about its growth, planning, life cycle and evolution is very similar."
However, Hinton cautions, the UK does have some differences that his bank is trying to cater for. In spite of how it might seem, it's a much more self-sufficient economy with exports playing a smaller role. "Hopefully, that will grow. Every company is different and at a different stage in their journey," he says. "Yet, actually what they want from their bank is consistency, responsiveness, and long-term trust and relationships. That's why Lloyds is trying to provide in its business the same as other banks will be trying to provide in other countries."
Recognising different businesses have different needs, Lloyds has embarked on a programme to help them meet its goals through a package of measures. It has trained an army of business mentors, established itself in hundreds of business centres offering advice and set aside a small fortune aimed at helping SMEs get to where they want to be. In recent years, the bank has committed to lend at £1 billion more, net, each year. "I'm delighted to say we're on track in 2014 to do more than a billion," says Hinton. "Following the crisis - around 2009 - when the banking industry was trying to come up with ways to help the economy and drive growth, the government came up with the funding for lending schemes that Lloyds embraced, possibly more so than any other bank."
The arrangement saw Lloyds receive a 1% discount on its funding from the government that, it says, it passed directly on to its customers.
One such funding initiative the bank has got involved in is the Greater London Enterprise Fund, established to help start up as many as 270 micro businesses. A combination of existing relationships with the fund, and its partners and government enticement through tax incentives, attracted Lloyds to the project.
"We've put in £5 million initially, so a number of small businesses will benefit, but I would imagine that if this is successful this funding will grow and we'll keep being involved in that. We're delighted to help," Hinton adds.
Start-ups are a crucial part of the SME sector and an important element within today's Lloyds Banking Group. Each year, it helps more than 100,000, initially providing the day-to-day banking services a small company will need with lending services an option at a later date. "So, things like this Greater London Enterprise Fund are potentially the first lender to get a business going. When there's a track record, in perhaps 12 to 18 months, banks might be able to get involved," he says.
Yet, as Hinton asserts, lending, although a "pillar" of what Lloyds does, is just one part of what today's business banking should be. "We like to help companies get more efficient. We help them in how they make payments, how they manage their working capital and how they manage their risks, whether its currency flows or commodity prices or interests rates," he continues. "We do more than just the banking and lending. We have contributed more mentors to the business sector than any other bank in the UK. Our experts are available to work with customers and, in the industry, to be a sounding board and someone to consult over their business issues. Hopefully, we can bring some experience and help them as they go through their strategic plans."
However, it goes beyond that for Lloyds. "Clients and customers want their banker to know and understand them," Hinton says. "They expect banks to know their business; not only their company, but also the industry in which they work." Addressing this, the bank tries to ensure its relationship managers have sector knowledge and training. "For example, in our manufacturing team - where we have 200 relationship mangers looking after manufacturing companies across the UK - all of them have been on a week-long training course at Warwick Business School at the manufacturing centre. They've learned the language, issues and challenges of the manufacturing industry, and they keep that going through continuous professional development thereafter. I think relationships, listening skills and understanding the needs of our customers, and being able to respond in a quick and timely way is the secret, and that's what we try to do."
Against the trend
It seems as though the approach is working for Lloyds, which has been growing year on year since 2010. "When the rest of the industry was still declining, we were bucking the trend," says Hinton, who put much of the bank's success down to its work within the SME sector. Yet, the sector is becoming much more competitive with more players getting involved - partly the result of new government initiatives - changing regulations and shifting customer needs. However, Lloyds' commitments remain resolute. "We're very committed to the UK - 95% of our assets and people are now there - and we're very committed to SMEs. A strong and healthy UK economy is good for Lloyds Bank, just as a strong Lloyds bank is good for the UK economy," Hinton concludes.