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Bank closures hit small businesses in poor communities

3-minute read

Bank closures hit small businesses in poor communities
Jade Wimbledon

Jade Wimbledon

1 July 2016

Research from news agency Reuters reveals that banks are closing branches in some of the UK’s poorest areas. With some small towns left without a single bank, there are concerns about the negative impact on local businesses.

Move Your Money, a not-for-profit organisation that campaigns for a better banking system, says towns where the last remaining bank shuts experience a 104 per cent drop in small business lending growth, pushing net lending negative.

MPs debate the bank closure issue

The Reuters analysis shows that more than 90 per cent of branch closures have been in areas where the median household income is below the British average of £27,600.

On Thursday, MPs debated the issue in the House of Commons, with Shadow Chancellor John McDonnell putting forward recommendations from Move Your Money, including the proposal to “implement a rigorous public interest assessment before closing a branch.”

Banks shut in poor parts of Wales

The Western Wales and Valleys region has the highest level of poverty in northern Europe, and large banks are three times more likely to shut a Welsh branch than they are to close a branch in the southeast or London, the richest parts of the country.

Labour MP for Llanelli Nia Griffith said "If we want businesses to thrive in areas with scattered populations and lower incomes, they must keep at least the last bank in every community open."

Jonathan Edwards, Plaid Cymru MP for Carmarthen East and Dinefwr said "The fact that poorer areas are being hit the worst by branch closures, means you're going to see a perfect storm making it harder for them to regenerate."

Branch closures impact local businesses

For places left without a local bank, the impact on small businesses is two-fold. Firstly, people in the community don’t have easy access to cash, so shops, cafes and pubs that don’t take card payments suffer. Secondly, it’s much more difficult for the business owners to access bank services – to regularly deposit their takings, for example, or to apply for a loan.

Move Your Money say that lending growth to small local businesses is down by an estimated 63 per cent in places that have lost a bank branch, although HSBC say that they’ve launched a digital service so that small businesses can apply for loans without visiting a branch.

Cross Hands loses its last bank

The village of Cross Hands in southwest Wales is set to lose its last bank branch this summer, which means the nearest bank will be in Tumble - a 90-minute round trip by bus for anyone without a car.

Jo Payne, who is about to open a café in Cross Hands, will need to deposit cash takings, and says the closure of the Lloyds branch will have a big financial impact, as she’ll have to close up each time she needs to travel to the bank.

Laura Evans, of Cross Hands estate agents Peters and Co, usually visits the local branch twice a day to pay in cash and cheques, but will now need to drive to Tumble each time. She’s concerned that “in the future, only the wealthy or those willing to pay for a personal service will be able to talk to bank staff in person.”

Why the closures?

Banks say that these closures are happening because they need to cut costs and they’re closing the branches with the fewest customers. Online banking is also becoming increasingly popular, arguably reducing the need for high street branches.

But some people – in particular the poor and elderly – don’t have access to the internet or lack the know-how to use online banking. Plus, some services (including withdrawing money or making cash deposits) can only be provided by bricks-and-mortar banks.

Unless politicians do intervene, it’s unlikely these bank closures will slow down: a study by investment bank UBS published in January predicted that half of all branches could be shut in five years.

Has your business been affected by local bank closures? Tell us in the comments.

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