Traumatised industry warned on risk aversion

By Brian Groom, Business and Employment Editor

November 13th 2009

Companies must overcome their risk aversion and invest in expansion if prospects for economic recovery are not to be undermined, a report by HSBC Commercial Banking warned on Friday.
Only 15 per cent of UK-based companies are seeking external investment, according to a survey of 2,100 small businesses conducted for the bank by Delta Economics.
It paints a picture of a business community so traumatised by over-borrowing in the boom years that owners may be too fearful to seize opportunities created by a recovery.
The report also warns that if some companies do not raise finance now they will not have the resources to weather the recovery. In the past more businesses failed in the early days of recovery than in recession.
In spite of complaints by business groups about the price and availability of bank credit, the survey found that only 17 per cent of companies said they were not seeking finance because banks were not lending and it was not worth trying.
Eighty per cent said they were not looking because they had no need for finance, while 53 per cent said the reason was that the owners were putting in money themselves – a “short-termist” approach, says the report.
Noel Quinn, HSBC’s head of commercial banking, said the country was at a turning point but he was optimistic that companies would become more confident. “They have cut costs, they have conserved cash. Now we are at a transition point when we need the confidence to reinvest in plant, equipment, stock and rehiring over the next six to nine months,” he said.
Banks also had to be “willing and able” to support investment, Mr Quinn said. He said lending by HSBC, which has just less than a fifth of the corporate and small business markets, was “round about flat year on year”. An encouraging sign was that lending for export and import purposes was up 30 per cent by value and 15 per cent by volume, suggesting companies were gearing up to exploit export opportunities created by the weak pound.
See: http://www.deltaeconomics.com/COGS/
http://www.ft.com/cms/s/0/128cc502-cfdf-11de-a36d-00144feabdc0.html