I needed to think carefully to get my head around this one. Apparently the FCA think that the retail credit agencies in the UK have significant variances between the information they hold on borrowers. This would not be particularly important except that the major banks rely on the credit agencies to make decisions for them. On top of that whatever the credit agencies decide won’t make any difference to the credit decision or the other variables that stem from the credit decision. What you get will be a product. If the institution that you bank with doesn’t have a product then it’s hard luck. Apparently the Credit Rating industry rakes in some £ 800 million every year from doing whatever it does. I suppose that what it is to collate information from banks which is by definition quantitative rather than qualitative who then base their decisions around a series of benchmarks which have very little relationship with the circumstances that the borrowers find themselves in. The FCA insist you KYC but the market practice tells you something else. This has nothing whatsoever to do with serving clients and more to do with not knowing your customer. Since the rating agencies got themselves ensconced in the banking business there is not real competition. Interest rates bear no relationship to risk and a product mindset provides poor service at a high price. Who wins?
I am supposed to be writing about lending but I cannot help but focus on how some people evaluate risk. After all lending is in the risk business and investing is just another string to the bow of that risk business. Nevertheless I have to say that some of the great and the good seem to have been taken for outright fools by the emergent Crypto scandal. This includes Bill Clinton and Tony Blair, by the way, who both spoke at a crypto gig earlier this year lending at least a tiny bit of credibility to this make-believe market. I have not yet met anybody who can give me an adequate and coherent reason why any crypto currency has any value whatsoever except that a lot of very foolish people were at one time convinced that it was valuable and a hedge against FIAT currencies and that a whole industry has grown up around a group of fools and chancers. Admittedly some people have made a lot of money but I am sure that a lot more has been lost. Bitcoin has stated remarkably stable falling from a high of around $ 66 k to $ 16k or 76%. How much further can it go. Well I’ll tell you right down to zero and the only reason it is stable is that those hold ing it are too scared to admit that they were sold a pup.
The fact that China is financing a number of projects in developing countries as part of its Belt and road initiative is already well known but a controversial railway project in Kenya financed by China and a recent General Election in Kenya have conspired to force the Kenyan government to disclose the terms of the loan. Originally signed in 2014 the terms and conditions of the loan were shrouded in secrecy. This is a common factor in most if not all of loans made by Chinese entities to developing nations together with collateral rights, binding arbitration in Chinese Courts restraint of trade clauses and high rates of interest. Kenya has stated that loans from China are strangling its economy. When you consider that China is the worlds largest lender with assets around 6% of Global GDP many countries could already have fallen into this trap. It is not clear what Beijing was trying to get out of these arrangements but a raft of bad debt and a lot of ill will seems the most likely outcome.
Howard Tolman is a well known London Based ex Banker, IT specialist and Entrepreneur