Bournemouth council shuts down bank project
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Bournemouth Town Hall
Bournemouth Borough Council has scrapped its “Bank of Bournemouth” initiative, less than 18 months after it was created.
The council set up its Community Finance Initiative in July 2013, and has so far lent £1.9m to small businesses and provided loans for deposits to homebuyers.
However, the scheme, which had originally been intended to provide £15m in loans, has now been scrapped, after the council spent more than £1m on set up costs.
A statement by the council said: “The circumstances and market conditions under which the scheme has operated have changed substantially.
“As the initiative developed it became clear that changes in the mortgage and business lending markets required the council to act cautiously and review the model in light of these circumstances before the level of investment required grew further.”
It said that changes needed to respond to reductions in funding announced in the government’s recent Spending Review required the council to review all its resources in setting its 2016/17 budget.
The council had originally forecast that it would make a return of between £6.9m and £24.2m over its first 10 years, and that it would agree 15 business loans a month.
However, it is understood that loan agreements have averaged only one a month, with just £450,000 lent to businesses.
The council said that set up costs covering professional and IT fees totalled £296,000. The total investment in the initiative is £1.1m, excluding business loans and mortgages actually loaned.
It is understood that much of the investment was spent on consultancy fees related to an attempt to gain compliance with the Financial Conduct Authority.
Existing loans will now be absorbed into the council’s existing resources, meaning no additional fees will be incurred, according to a spokesman.
The typical rate of return is 8-10% on business loans and 4.2% on mortgages, meaning that the initiative is likely to return £900,000 by the time they are paid off, the council said.
In addition, according to a statement: “Unlike high street lenders, the council also views ‘return’ in terms of its impact on the local economy and in this respect it has injected nearly £1.9m in mortgages and loans supporting homeowners and 22 young or start-up businesses, helping to create and sustain over 90 local jobs.”
As recently as June, the council’s cabinet had committed to providing another £2.5m to continue support for the initiative.
But council leader John Beesley said: “At a time when SMEs in particular were struggling to secure investment funds from traditional high street banks, Bournemouth Council decided to use some of its resources to stimulate the local market.
“Whilst operating within a commercial and financially regulated framework, Bournemouth Community Finance was designed primarily to support Bournemouth’s economy, and by injecting loans of almost £600k into local companies has helped to create and sustain over 90 jobs in the Bournemouth area.”
The bank was the brainchild of Bournemouth’s former executive director for finance Liz Wilkinson, who is currently awaiting the outcome of a tribunal considering her claim for unfair dismissal.
Photo (cropped): Bournmouth Town Hall, Alex Liivet, Flickr.
