The Banking Environment
Economic and political environment
The UK is one of the largest economies in Europe, it is a member of the EU but not of the euro. There are no current plans to hold a referendum on euro membership although key members of the government and some major UK businesses are committed to it.
The Bank of England pursues an independent monetary policy regarding GBP, even though it is a member of the European System of Central Banks.
GDP per head is USD26,000. Population is recorded at 60 million.
UK time is 1 hour earlier than CET.
Banking in general
The UK environment is a liberal banking environment, underpinned by the presence of a major financial centre in London.
Most of the main UK clearing banks have nationwide branch coverage throughout England and Wales but not all have branch coverage in Scotland. These branch networks are facilitated by a common IT infrastructure, which means that corporates do not need to hold accounts in different locations for the purposes of paying-in cash and cheques as well as making withdrawals – instead, pay-ins and withdrawals can be made at any branch.
The UK has an efficient postal system. Delivery times can be next-day (First Class) or two days (Second Class). These timings can go one day longer depending on the time of day of posting, and the two end-points, but in principle the delivery timescales are homogenous nationwide.
Lockbox type facilities are a common feature in collecting receivables. This also makes it easy for businesses to pay their suppliers by sending cheques through the post as settlement.
Retail companies with major cash takings no longer bank these themselves; it is more common for the tills themselves to be locked at the company premises and collected by a security carrier (Securicor, BrinksMat), and processed at the security carrier’s premises. This process embraces cheques and card payments as well as cash. The availability date for cash deposits is usually D+2 , the same as for cheques. A differential charge is made for notes that can be loaded into an ATM, compared to those that cannot. Retails tills have now become a major source of cash withdrawal under the “Cashback” facility – the shopper can ask for up to £50 cash to be added to their Debit Card charge, which will be given out in non-ATM notes.
The main drivers of UK processes are automation and efficiency rather than savings on mail float. It would be unusual for corporates to maintain two lockboxes at different locations solely for cutting mail float.
Most banks in the UK will pay credit interest currency accounts and offer a range of options depending on deposit value. UK banks do not generally pay credit interest on sterling current accounts but instead, offer business “high interest” accounts that sit alongside the current account.
These interest-bearing accounts are usually instant access and it is normal for there to be an automatic transfer to/from the current account.
Corporate customers are also able to set-up Group Account arrangements with a Treasury Account to facilitate the investment of funds on the UK Money Markets.
UK banks generally collect current account charges on a per item (different charges per transaction type). Credit allowances are often available to offset credit interest against charges.
Overdraft is a popular borrowing form. The interest rate on an overdraft is usually expressed relative to the Bank of England Base Rate.
Other regular forms of short-term borrowing are:
- Money market loan, based on LIBOR
- Discount of a bill drawn against trade/lease receivables, discounted at a bank whose accepted bills are eligible for re-discount at the Bank of England; the discount rate is based on “EBDR” – the Eligible Bill Discount Rate
- For larger companies, GBP Commercial Paper
Currency
Pound sterling (GBP)