Lloyds boss says ‘failed’ banks face real battle to reclaim trust

By MARTIN FLANAGAN
Published on 07/09/2012 00:00

TRUST in the banking industry has been worn away because it became complacent, inefficient and failed to focus on customer needs, one of Britain’s top bankers admitted last night.

Antonio Horta-Osorio, the Portuguese chief executive of Lloyds Banking Group, said that, as a results a new banking model was needed that made retail and commercial banks “simple and boring” but trustworthy again.

Acknowledging that the sector had “done itself no favours” in recent years, Horta-Osorio told the CBI Scotland annual dinner in Glasgow: “Issue by issue and scandal by scandal, the faith and trust in our industry has been eroded. Why?

“Because I believe that many banks lost sight of their core values and became complacent, non-customer-focused and inefficient.”

The Lloyds boss, who oversees businesses including Bank of Scotland, Halifax and Scottish Widows, said that “in the run-up to the [financial] crisis several banks were complacent about risk, running unsustainable business models and extending credit to doubtful clients or countries without due thought.

“Second, many banks lost their focus on customers. They have branch opening times built around their convenience. They have closed small-town branches without considering the impact on the local community.

“And the sector generates a level of complaints that few other industries would tolerate.”

Horta-Osorio, whose audience included Chancellor George Osborne, said that another big problem was that several banks became “bloated” and had to chase revenues to outpace cost growth.

“That meant more complex products that many customers didn’t need or understand, whilst incentivising employees to sell them in volume,” he added.

“This all happened in a context where core banking practices were relaxed and subordinated to financial short-term gains. This has to stop.”

He said it was clear the industry needed “a recast banking model” and added that the cultural change had to come from the top, with banking bosses who thought and acted for the long-term without what had become too great a reliance on sales targets.

“This [sales targets] has had a detrimental impact on behaviour, in part contributing to the problems the industry has experienced with mis-selling, in the case of retail banking,” Horta-Osorio said.

“This is an unsustainable model. It’s as simple as that. Banks cannot continue to write profits today that we have to pay back at a later date.”

It emerged earlier this week that the bank was facing a potential fine over target-driven bonuses amid a wider probe of financial incentive schemes by the City watchdog.

The Lloyds boss said simpler, more transparent banking products and processes were needed that were “designed from the customer’s point of view”. He cited a Lloyds pilot initiative aimed at getting loans into the accounts of small businesses in half the time.

Horta-Osorio also commended the Chancellor and the Bank of England “in the ambition they have shown” in creating the new Funding for Lending scheme.

He said he was “convinced the scheme will provide a boost to economic growth in the UK”.

John Cridland, the CBI director-general, called Horta-Osorio’s speech “a thoughtful assessment of the critical steps that need to be taken to restore confidence in the banking system”.

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