Over the past five years the level of recruitment in leasing and other forms of SME finance has been weak. Recruitment among challenger banks and alternative finance providers has not made up for the cost-cutting and restructuring in these areas among the big banks or the exit of major leasing market players like ING.
However, there are tentative signs that seven years on from the credit crunch, banks’ appetite and scope to lend to small businesses may finally be about to improve and demand for executives with the requisite expertise – in fintech, as well as SME lending and lending to drive innovation and efficiency – could be about to surge.
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One such indicator is recent research we conducted to identify forward trends in recruitment. This revealed that many senior interim executives in the banking industry expect that lending to SMEs will deliver the highest margin growth for banks out of any of their main product lines over the next 12 months.
Such a boost in profitability would likely correlate with an increase in activity – which may go some way to explaining why these same executives widely predict retail and commercial banks will be by far the biggest creators of jobs in the financial services sector next year.
The main reason for this projected margin growth is that of supply and demand – as the economy gathers pace and businesses look to growth opportunities, their borrowing requirements could well increase. The probable knock-on effect is that a shortage of supply that could create healthy margins for banks.
Small businesses may find this cause for muted celebration in the short term – fearing the impact on affordability even if availability improves. However, in the longer term, as the market becomes increasingly appealing for banks, competition is likely to heat up and banks will require greater numbers of experienced personnel, whether on an interim or permanent basis, as the sector expands.
If margins are to increase at the rate anticipated, technology is going to have a vital role to play. Candidates will be expected to deploy fintech expertise as well as small business lending experience in order to implement highly efficient and cost-effective IT systems to maximise profitability.
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By GlobalDataWhat would such a turnaround mean for the leasing sector? For one thing it could positively impact their funding lines, enabling them to expand their finance to make more available to small businesses. Will SMEs revert to more traditional funding avenues? A wholesale exodus seems unlikely – they may seek to mix and match their options with bank lending, but those that have experienced the benefits of leasing are often converts to this ‘alternative’ form of funding.
By contrast, lending to larger businesses is widely expected to see the weakest margin growth for banks. The inference is that larger corporate lending margins are less well protected, but other factors such as less reliance on bank lending as a primary source of funding may also come into play.
However, if the widely anticipated rise in interest rates does materialise in the year ahead, this could widen lending margins right across the board. So it is perhaps the increase in interest rates from their current abnormally low levels, and the widening of lending margins that brings, that will see a further rise in overall recruitment levels in SME financing market.
Angela Hickmore is partner at Interim Partners
