Stuart Parfitt, from specialist commercial lender Business Lending Ltd, commenting on Government initiatives to promote lending, has said: “Whilst well intentioned, the existing loan support schemes will not work without a much greater commitment at ground level and that’s just not going to happen through the mainstream banks.”

Mr Parfitt went on to say: “Aside from the fact that they are spending the vast majority of their time managing sub-performing and non-performing loans, the mentality of bank risk managers is one of ‘never again’ or at least ‘not on my watch.’ Remember, these are the people who took once proud banks to the edge of the abyss, stared bankruptcy in the face and they will never forget that. It will take a generation to change the mindset.

“Bank senior management might publicly support the programmes but they are fully committed to trying to deal with the existing mess and restructure the business. Jobs are being shed and morale is in the gutter over the bonus row. Banks just don’t have the management resources to make new lending a priority.”

“The proposed ‘Bad Bank’ idea will help free capital, but it won’t free up management time or change the ‘not on my watch’ mentality.”

“What we need is an independent ‘Good Bank or Banks’ – lenders who would focus on providing new credit in the form of loans to small businesses, residential mortgages or car and equipment finance. Credit, rigorously underwritten on sensible criteria and properly priced, will perform well. Mortgage credit, especially commercial mortgage loans, can be underwritten at much more modest LTVs than we have seen in recent years and with the additional benefit that values have reduced by almost 50%. Once seasoned, these loans can be recycled into the capital markets in 18-24 months time at little or no cost to the taxpayer.”