Returning to the basics of banking

Francois Jozic of Noa Bank Mr Jozic at Noa Bank is calling for more transparency in the financial sector

Regardless of the new banking regulations across the globe, there are changes in the industry itself, as people seek a discovery of the old ways.

In Germany, the Noa bank is eschewing the flashier aspects of the industry.

"We are getting back to traditional banking by borrowing and lending," says founder Francois Jozic.

"It is essentially lending to small and medium-sized companies - which should be the core business of any banks," he asserts.

He says there will be no toasting billion-dollar deals with champagne and no speculating on Greek debt.

"This is a profitable approach, much more sustainable than the other classical banks," he says.

Defined roles

He is determined to impose a definition of what speculation is - and also to have some limits.

"It is true that when we give credit to a small company, we speculate on the fact that it will be repaid, plus interest, and we take a risk," he says.

"But that is a completely different approach to thinking there might be a flood in Asia tomorrow, so I will buy some rice."

Start Quote

What is wrong is when a bank speculates and does not tell its clients”

End Quote Francois Jozic Noa Bank

He believes that is obscene and insane for communities and moreover, it does not bring any value to those communities.

Some people argue that speculation on commodities, such as the transactions carried out at the Chicago Commodity Exchange, is sensible and smoothes the market.

"I am not saying that having a speculative or capitalist system is wrong - I am saying that it shouldn't be the role of a bank," Mr Jozic maintains.

"The issue in the banking system is, when client puts a deposit in a savings account, he wants it to be safe and he does not expect his bank to play with his money on any stock exchange."

Andrew Giles

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We are less interested in the actual purpose of the loan, we are interested in our assessment of the individual's ability to repay it”

End Quote Giles Andrews Zopa

He says that people have a right to buy shares or to speculate on commodities, but they do not give their bank a mandate to play with their deposits.

"Those people expect to have a little interest in return. What is wrong is when a bank speculates and does not tell its clients. That is not transparent."

Mr Jozic is adamant there should be a clear separation between commercial banks and investment banks.

"I have no problem with them co-existing," he says, "Research in Germany shows 80% support for lending money to the real economy, rather than speculating with it."

Mutual benefit

Another example of how banking ideas have changed is a British enterprise called Zopa, which brings together those with money and those who need money.

Zopa's chief executive, Giles Andrews, says his role is to manage a market place and to connect lenders and borrowers directly, without their having to deal through a bank, and therefore offer both sides a better deal.

"We assess the person, rather than the project, and create a credit file on them and put them into one of five different credit markets - A, B,C, Why and No," he says.

Lenders choose which or all of those categories they want to lend to and they build in their expectations for bad debt.

The most popular reason to borrow money is to buy a car, followed by home improvements and debt consolidation.

"We are less interested in the actual purpose of the loan, we are interested in our assessment of the individual's ability to repay it," says Mr Andrews.

Happy client

Anna Siraut says she received a reasonable amount of money a year ago and while she used some of it to pay off bills, she had some money left.

"Through word of mouth, I heard about Zopa," she says.

cars in a used car showroom Most loans are used to purchase cars or for home improvements

"I could lend money to people at a rate they wouldn't get at a bank and it would help them," she says.

"I have lent money to people who wanted to buy a camper van to travel round Europe, people who have had unexpected bills because of flooding through their roof - it is quite diverse."

A couple of times a week, she goes into what is called the listings market.

"That is where people can put their appeal directly to me and say what they want to do with the money, what kind of interest rate they are looking at and the term that they are going to pay it back," she explains.

It is like an auction - people who are prepared to lend money will put in how much they want to lend and at what interest rate they are prepared to lend.

"If people undercut you, you get pushed further down the line," she adds.

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