‘Hoarding mentality’ growing among businesses

BANK lending policies are leading businesses to hold onto cash reserves at the expense of the economy, according to a survey of Yorkshire finance directors.

The research by advisory firm Grant Thornton found that 83% of respondents surveyed said that bank lending policies were creating a “hoarding mentality”.

Jonathan Riley, senior partner of Grant Thornton in Yorkshire, said: “There are businesses that have ridden out the worst of the recession, and are thriving but where ordinarily these firms spend and grow, the lending climate is forcing a hoarding mentality that further polarises the fortunes of business.”

The survey also showed that two thirds of finance directors had considered changing banks in the last year, and one third had changed their future strategic plans to be less reliant on bank funding.

Mr Riley said: “Directors are caught between a rock and a hard place: if they pursue growth strategies and spend their reserves, banks won’t then support their future needs. 

Whether this is reality or perception, it’s clearly a very poor situation, it also says a lot about a breakdown in trust that may be emerging between corporates and the banks.”

Another unexpected trend is the growing problems businesses face managing their surplus cash reserves, with 66% of FDs responding that they were facing new challenges with managing excess cash, and ensuring it was not depreciating in a time of high inflation.

“With businesses facing increasing levels of cash requirement, either because of growth and acquisition planning or simply as a precaution in case lending isn’t available, there come some increasingly pressing problems for firms,” Mr Riley added.

“With growing uncertainty about the stability of once blue-chip financial institutions, rising inflation and interest rates flat lined, cash is a costly asset to hold.”