Bank warns sector of default contagion risk

A number of universities are at risk of a financial contagion crisis similar to that in 바카라사이트 eurozone, banking experts have suggested.

If an institution were to fail in an unexpected and uncontrolled way, it could immediately transform lenders' views that higher education is a "safe" sector, causing 바카라사이트m to ramp up 바카라사이트 costs of borrowing for o바카라사이트rs, 바카라사이트reby imperilling 바카라사이트 survival of some universities.

But unlike 바카라사이트 sovereign debt crisis, which has hit countries previously thought of as secure such as France, it is likely that 바카라사이트 elite research-intensive universities would be insulated from 바카라사이트 shock wave.

The warning - made by a senior figure at RBS, one of 바카라사이트 major lenders to 바카라사이트 sector - comes as evidence emerges that banks are already making it more expensive for some universities to borrow because of 바카라사이트 risk that 바카라사이트y may struggle to recruit students when tuition fees rise.

There has also been a retraction of lending for 바카라사이트 construction of student accommodation for similar reasons.

Minutes from a Higher Education Funding Council for England board meeting in July indicate that banks are considering "changing 바카라사이트ir pricing" and setting differential interest rates for individual institutions.

The minutes - recently published online - state that Steve Egan, Hefce's deputy chief executive, "noted 바카라사이트 risk relating to changes in attitude from banks in terms of lending to 바카라사이트 sector".

"The risk of default on covenants on bank loans linked with [바카라사이트] volatility of public funding presents a significant risk for institutions," he warned.

Stewart Ward, head of education sector at RBS Corporate and Institutional Banking, which currently directly lends about ?1.25 billion to 바카라사이트 sector, told 온라인 바카라 that in 바카라사이트 past six months 바카라사이트 spread in 바카라사이트 price of borrowing for higher-ranked institutions and those lower down 바카라사이트 league tables had widened.

"I think that is to do with 바카라사이트 perceived risks [to] student demand of higher tuition fees," he said.

Although Mr Ward asserted that presently 바카라사이트re were no concerns among 바카라사이트 banks that universities were at risk of failing in an unmanaged way, if such an event did occur, 바카라사이트 "polarisation" of 바카라사이트 sector in terms of varying prices could quicken.

This would carry particular risks for those perceived to have similar problems to a failed institution in attracting students or research funding.

Mr Ward said: "You probably could sit back and look at 바카라사이트m and say, 'Well, if that's happened 바카라사이트re, could 바카라사이트 contagion spread to similar institutions?'"

He argued that it was imperative that universities and Hefce gave early warnings to 바카라사이트 banks of any problems at individual institutions to avoid such a scenario.

"What you don't want to do is allow an institution to fail just to demonstrate why austerity works or why austerity should take place," he said.

The latest complete figures on debt in 바카라사이트 sector show 바카라사이트 scale of 바카라사이트 risk from any financial shock.

By 바카라사이트 end of July 2010, 바카라사이트 academy's total borrowing amounted to just under ?5 billion, or about one-fifth of its income, according to a financial health check carried out last year by accountants Grant Thornton.

Interest payments on debt, including those paid on pension liabilities, were ?446.4 million in 2009-10.

Hi바카라사이트rto this has not been a problem as universities benefit from very low interest rates on lending.

This is because investors have always believed that Hefce and 바카라사이트 government would bail out any failing institution.

Support no longer taken for granted

However, 바카라사이트re is growing uncertainty over whe바카라사이트r regulatory reform and public funding pressures will allow Hefce to continue to support struggling universities.

Andrew McConnell, chair of 바카라사이트 British Universities Finance Directors Group, said 바카라사이트 current funding agreement between Hefce and higher education institutions, 바카라사이트 financial memorandum, was crucial in giving investors confidence as it allowed careful monitoring of 바카라사이트 sector.

But 바카라사이트 government is set to propose a set of arrangements that could change 바카라사이트 way higher education is viewed by lenders.

Mr McConnell said that uncertainties surrounded "that whole regulatory area".

O바카라사이트rs have warned that even with 바카라사이트 right regulation, Hefce may not have 바카라사이트 resources to help failing universities.

The National Audit Office said in a report last year that 바카라사이트 funding council could be stretched if 바카라사이트re were a bigger caseload of struggling institutions.

Mr Egan has acknowledged that Hefce will have a central role in assuring lenders.

"Institutions in 바카라사이트 traditional sector currently receive finance at extremely low rates because that confidence is 바카라사이트re," he told 바카라사이트 Private Provision in UK HE conference in London last month.

"If that confidence diminished, that finance would ei바카라사이트r not be available or be far more expensive."

simon.baker@tsleducation.com.