BBB AR 2020 Banner image Manage Risk and Returns

Our objectives

Manage risk and returns

To achieve our other objectives whilst managing taxpayers’ money efficiently within a robust risk management framework.

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Why it is important

In deploying public funds, we are very mindful of our responsibility to deliver our programmes in accordance with the highest public sector and industry standards, whilst achieving value for money across our portfolio of activities.

We manage our finance programmes carefully, continuously monitoring and, where appropriate, increasing our operational and risk management capabilities. This helps to ensure that we deliver effectively, to required standards and within a clearly defined risk framework. To support this, we follow an annual business planning process in consultation with our Shareholder.

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Responding to the challenges, and 2019/20 snapshot

A significant achievement under this objective was the completion of the Bank’s first National Audit Office (NAO) value for money study, published in January 2020. This involved nearly 12 months of fieldwork and analysis by the NAO, working closely with Bank colleagues across every department. The NAO’s Comptroller and Auditor General was positive in his conclusions, finding that the Bank was “performing well” and that smaller businesses “have been growing as a result of its activities.”1 The report also stated that the Bank’s costs were in line with organisations undertaking similar activities.2

The NAO’s report set out recommendations for the Bank, its Shareholder, and HM Treasury.

We welcomed and accepted these findings and are in the process of responding in detail, including working with the NAO so that our response meets the intent of the recommendations. To this end, and as a first step, we are responding to one of their Bank-oriented recommendations, with a summary of where we have withdrawn finance programmes since our inception, the reasons for this and the effect on our overall portfolio.

In November 2019, the Bank was granted a renewal of its State Aid settlement for a further five years. This enables the Bank to continue to operate within applicable competition law frameworks, as a publicly-funded entity operating in the markets. The renewal decision acknowledges the Bank’s activities since 2014 as being compliant with the original State Aid decision, confirming that the Bank’s remit and activities can remain along similar lines until 2024.

We commissioned and published independent evaluations of our Northern Powerhouse Investment Fund and Start Up Loans programme. Both confirmed that the programmes were delivering on their objectives and were ultimately value for money, with significantly greater economic benefits than costs commissioned.

The Bank delivered 17 projects during 2019/20 broadly focused on improving the Bank’s control environment and continuous improvement. Notable key projects delivered include the conclusion of the Bank’s GDPR programme, implementation of IFRS9 reporting capability, creation of the Portfolio Operations function to support fund portfolio administration and middle-office activities, introduction of a contract management system, migration to a new payroll system and roll-out of a continuous improvement framework.

As an indication of our strong compliance culture, following the launch of a new e-learning programme in 2019/20, 99% of colleagues completed their required training. This ensures colleagues are aware of the Bank’s key compliance policies and their associated legal and regulatory responsibilities.

BBB AR 2020 Case study Images Organise
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Case study
Organise

  • Region: London
  • Location: London
  • Programme: Enterprise Capital Funds
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Organise is a 500,000-strong worker-driven online network of people who support each other at work by providing the tools, support and confidence people need to improve their work lives.

Started in 2017, founders Bex Hay and Nat Whalley needed seed finance to upgrade their digital infrastructure and build additional tools to support grassroots campaign action.

Finance from the Ada Ventures’ Enterprise Capital Fund has meant Organise has been able to grow rapidly, allowing it to keep up with demand and introduce new ways of supporting its members.

2019/20 KPI performance

Our KPI for this objective is ‘adjusted return on average capital employed’ across our finance programmes.

Prior to Q4 2019/20, we were on track to achieve our targeted adjusted return. However, given the impact of Q4 2019/20 valuation adjustments and additional expected credit loss provisions, as Covid-19 emerged, the final outturn for the year is below the target.

Further detail on financial performance can be found in the 2019/20 financial performance and calculation of adjusted return section.

Target

Adjusted return on average capital employed of 2.13%, by 31 March 2020

Outturn

As of 31 March 2020, adjusted return on average capital employed was 1.20%

Interim Covid-19 update on Bank activities

The Bank’s activities were severely affected by Covid-19. During this period we convened regular meetings of the Board, and Board Risk and Audit Committees, to oversee emerging risks and challenges. We invoked our Business Continuity Plan and moved swiftly to enable staff to work from home. We discuss this in more detail in the ‘Our People’ section.

While the Bank’s objectives have remained the same, our Shareholder suspended a number of our underlying KPI targets at the outset of the pandemic, in line with an action plan agreed pre-crisis, to permit complete focus on the Covid-19 response and in recognition that any attempt to enforce the Bank’s usual KPIs (such as a specific return target) would constrain it from acting countercyclically in partnership with government.

We will revisit our KPI targets in H2 of 2020/21 to ensure that appropriate accountability frameworks are in place to support the responsible, robust delivery of both the Bank’s Covid-19 response schemes and effective management of existing finance programmes and non-financial activities.

We keep ongoing operational delivery of our Covid-19 schemes under constant review. We have scaled our resources – including via outsourced models where appropriate – to meet the management demands of what is now a significant emergency loan guarantee and convertible loan note portfolio.

Since 23 March, our schemes have delivered over £51bn of finance, with more than 1.2m facilities provided to businesses. During this period the Bank has grown the amount of finance it supports to businesses across the UK by a factor of seven and increased the number of businesses it is supporting by more than ten times. Any outsourcing remains under our close oversight and does not diminish our accountability for finance programme management.

We have re-prioritised our 2020/21 business plan to ensure our resources are focused where they’re most needed. As the situation develops, we remain operationally positioned to respond as required, to support smaller businesses now and beyond the current pandemic.

End notes

1 NAO, British Business Bank 2020, press notice, https://www.nao.org.uk/press-release/governments-support-to-business/

2 National Audit Office, British Business Bank, 2020, https://www.nao.org.uk/wp-content/uploads/2020/01/British-Business-Bank.pdf

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