Co-op to stop issuing new business loans

Last post: May 27, 2013

The Co-op are pulling back from the SME sector.

As new regulations on minimum cash reserve for banks take effect, Co-operative Bank will need to raise an additional £1 billion in order to comply and meet the necessary capital requirements.  Due to this, the bank has announced that it would temporarily stop issuing loans to new corporate clients as part of its measures to rebuild its current capital strength. The decision arose after Moody's downgraded the bank's credit rating to junk status.  This makes the bank ineligible for a bailout by tax payers. Part of its liquidity program also includes the selling of its life and general insurance business.  Co-op Bank has futhermore junked its plan to acquire more than 600 banking branches of Lloyds.  The most drastic so far, is the suspension of its corporate loans program.  Existing clients though will continue to be serviced. A financial review of the company's capital and lending position was initiated by newly appointed CEO Euan Sutherland, leading to the realignment of its current commercial strategy.  Operations would now focus on expanding the banks base of retail customers. Policymakers believe that the move would impede current programs aimed at revitalizing the economy thru small and medium-sized enterprise (SME) lending.  Part of this drive includes the government's Funding For Lending Programme which channels public money to SMEs via banks and other lending institutions.  New regulations though on capital requirements have prevented Co-operative Bank to maximize its reach to this sector. The bank has been relieved of a substantial amount of its capital when it came to the rescue of building society, Britania.  Wherein it inherited a portfolio of toxic commercial assets and home loans amounting to £662 million.  It is now currently in talks with the Prudential Regulation Authority in order to separate these assets by splitting the healthy part of the company from the bad.