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Co-op halts new business lending

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The Co-operative Bank has stopped lending to new business customers after it was revealed it has a estimated capital shortfall of over £1bn but the lender says it has not stopped lending to mortgage borrowers.

Co-op says the decision not to lend to new business customers will last indefinitely, although it will continue to lend to existing business customers on a case-by-case basis. It has confirmed the decision was taken due to the amount of capital it has to set aside for SME lending. Reports state it could have a capital deficit of over £1bn.

Earlier this month, ratings agency Moody’s warned the lender may be forced to seek “external support” due to low levels of capital compared with its peers and large losses on its commercial loan portfolio.

The ratings agency downgraded Co-op and said would need to boost its capital reserves to meet regulatory requirements. At the time, a spokeswoman confirmed plans are in place to improve its capital levels.

Chief executive Barry Tootell quit earlier this month following the Co-op’s failed bid for the 632 branches Lloyds has for sale. He was replaced with former Kingfisher chief operating officer Euan Sutherland, who has launched a strategic review to solve the mutual’s capital hole.

A Co-op spokesman says: “Following the appointment of Euan Sutherland, the group started a review of the Co-operative Bank, its capital and lending position and its commercial strategy.

That review is ongoing, however an early decision was to confirm that the primary focus of the banking business is to be directed at serving and expanding our presence amongst retail customers whilst continuing to support our existing business customers.

This is in line with our previously taken commercial, strategic decision that we would focus our energies and capital on these sectors of the market and would not, at this time, grow our corporate lending business. We are, therefore, no longer lending to new corporate customers. We are, however, continuing to support fully our existing corporate customers as well as compete for, and lend to, new retail customers.”

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  1. A photo of a Co-op food store? Really?!

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