BANK of Scotland chief executive Andy Hornby warned yesterday that the credit crunch had "fundamentally altered the landscape" for banks across the globe.
And Hornby predicted that liquidity woes affecting banks – and their ability to lend to customers – would to continue into 2010.
"The hard reality is there is going to be a year to 18 months where credit is constrained," Hornby told the inaugural
Global Financial Services Conference in Edinburgh.
In a question and answer session, Hornby was adamant that banks were limited in what they could lend, either in the form of mortgages or corporate loans.
He said that this was unlikely to get better until the recovery of wholesale financial markets, in which banks and financial institutions trade with each other.
Hornby called the Bank of England's intervention in April to swap £50 billion government bonds for bank assets "definitely a step in the right direction."
But he warned: "The catch 22 is all banks have to be prudent with money. We all have to make sure we are operating within the liquidity constraints of the surety of wholesale markets.
"Until wholesale markets reopen back to traditional levels, it is inevitable that, particularly in the mortgage markets, liquidity will remain constrained."
Hornby briefly commented on HBOS's plans to raise £4bn through a rights issue this summer, calling it the "prudent thing to do".
He said he believed that, in three years' time, it will have been proved to be the right course of action.
The chief executive maintained that HBOS still expected only a moderate slowdown in the UK economy.
And although he expects unemployment to go up, both in Scotland and the UK, rises will be modest.
The continued resilience of the employment market is a "core statistic" he said.
"We are a million miles away from the unemployment levels we had in 1991-2. As long as that unemployment number only increases moderately, the impact will be considerably lower than the type of impact we saw in the 1991 to 1993."
According to Hornby, HBOS customers now own a greater percentage of their homes than they did before the last downturn.
Operating in Scotland provides a competitive advantage to other locations in the UK and abroad, offering comparatively low costs along with a skilled workforce where more than 25 per cent of the working population has a degree.
Hornby attributed HBOS's cost-to-income ratio, the "lowest of the major UK banks", to having its major centres outside of London.
Englishman Hornby was unabashed about proclaiming HBOS's historic Scottish roots and the impact this has on its business in world markets.
He said the Bank of Scotland brand had "tremendous power abroad" which he attributed to Scottish stereotypes held worldwide.
"Scotland's reputation for expertise, financial probity, prudence and professionalism have definitely been a major advantage for us as we have gone into new markets," said Hornby.
"Scotland represents longevity and longevity symbolises strength and that is an appealing proposition in international financial markets."
The full article contains 506 words and appears in The Scotsman newspaper.
