HL Deb 28 November 1990 vol 523 cc966-8

3.1 p.m.

The Earl of Shrewsbury asked Her Majesty's Government:

Whether the Bank of England has issued or proposes to issue guidelines to recognised banks on the recovery of loans to property companies.

Lord Henley

My Lords, no formal guidelines have been issued by the Bank of England but I understand that the Bank discusses with individual banks the risks associated with loans to property companies as part of their routine, prudential supervision under the Banking Act.

The Earl of Shrewsbury

My Lords, I thank my noble friend for that informative reply. I should first declare an interest in that I work in the property sector. Is he aware that some foreign owned banks which operate within the United Kingdom and which took advantage during the 1980s of the boom in commercial property values to lend to companies when the Bank of England was urging caution are now severely lowering their exposure in that sector, with the consequence that borrowers who still have the support of their other bankers are often faced with premature and unnecessary receiverships?

Lord Henley

My Lords, I note the concerns of my noble friend but feel that the terms under which a loan is made and when that loan should be repayable must be matters for the banks and their customers. It would not be right to attempt to influence the banks' commercial judgment in this matter.

Lord Williams of Elvel

My Lords, will the Minister accept that the noble Earl has raised a very serious problem? The property sector is in deep trouble as a result of the recession. It may have overborrowed in times of boom, but that does not mean that banks should foreclose on their loans automatically and suddenly. Such action will land us in exactly the situation both in the property sector and in the banks that we had in the early 1970s. Therefore will he urge the Bank of England to be a little more active in trying to encourage the commercial banks to nurse companies back to health rather than trying to bring them down on a strict commercial basis?

Lord Henley

My Lords, I note the noble Lord's concerns. The situation is different from that in the early 1970s. Banks now have a far lower proportion of their capital invested in property than they had in those days. As I said in answer to my noble friend, I believe that it should be a matter for the banks and their customers as to the terms under which the money is lent and when it should be repayable.

Lord Morris

My Lords, does my noble friend agree that this is not just a matter of a contract between the banks and the customers? Is it not a very proper role for the Bank of England to issue broad guidelines particularly to foreign banks as to how and in what circumstances they act before they pull the rug from under their customers?

Lord Henley

My Lords, I do not accept that that is the case. As I said, it should be a matter for the banks themselves and their customers. The Bank of England will intervene on other matters, but not here.

Lord Williams of Elvel

My Lords, does the Minister not accept that it is not in the commercial banks' interest to pull these loans? Does he not think that it is up to the banks, together with the Bank of England—they need the reassurance of the Bank of England if they are to nurse companies back to health—in their own interest and the national interest to do this on a gradual and orderly basis? It is not just a question of a contract and closing the contract just like that.

Lord Henley

My Lords, if it is not in the banks' interest to pull the loans, I am sure that the banks will take advice from someone as respected in that field as the noble Lord himself and not pull the loans.

Lord Bruce of Donington

My Lords, does the Minister agree that the Bank of England has already issued notes of guidance to the commercial banks on the lines that have been suggested?

Lord Henley

My Lords, no. Under the Banking Act the Bank has a duty to ask the incorporated banks to give notice of exposure of capital over a certain percentage. It does not have a duty to give guidelines to the banks on when they should ask property companies to repay their loans or whatever.

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