In his article "Britain's Banks on the Dole," Robert Beasley quotes John Denham's view that the original lending to Third World countries was "a mistake." As far as Nat West is concerned, we were satisfied at the time the loans were made as to both the economic future of the countries involved and the prospects of the lending being properly serviced. What could not be foreseen was the upsurge in oil prices and the deluge of activity resulting in over borrowing by many countries who then simply could not cope with repayment of principal and high interest rates.

The recycling of money accumulated by the oil exporting countries--especially to under-developed countries seeking to meet economic growth aspirations--was effected with the full knowledge and support of OECD governments. The crisis in 1982 naturally caught all debt and not just that incurred in later years.

As far as provision is concerned, we regularly examine our exposure and provision requirements on a country by country basis, taking account also of changing perceptions of banking provisions worldwide. This led to our announcement in June 1987 of an additional charge of £466 million (in respect of the borrowing of 35 countries) against the profits for that year. Since Corporation Tax is payable only on profits, a natural consequence of the additional provision was the normal commercial decision to seek tax allowances which might reduce Nat West's tax payment to a certain extent--we remain a substantial tax payer with a tax charge in 1987 of £269 million. The innovative proposals put forward by Mr. Denham are really for the British Treasury to comment upon.

Nat West is not making any profit out of the countries hardest hit by such difficulties and the existence of "problem" debt is clearly a drain on the resource of the banking sector. However, to imply that Nat West is reliant on repayments from Latin America in order to maintain its cash flow is an exaggeration. Nat West has significantly lower exposure to the countries involved than have some of our competitors.

We are constantly looking at some of the ways to resolve the present difficulties--it is unfair to suggest that Nat West "fails to recognize the growing urgency" or that the raising of additional provision signals some change in the vigor with which we will pursue this matter.

The aim of any "solution"--and there are no easy answers--must be to enable the countries involved to return to a position of free access to the world's financial markets to which they will inevitably have to turn to continue overseas trade and infrastructure development. These are vital if longer term economic prosperity is to be achieved. It is for this reason that debt forgiveness (either full or partial write-off) is not really a practical way forward. It is not just "unpopular with stockholders and banking colleagues" but also amongst many of the borrowers involved who appreciate the full implications.

Nevertheless, Nat West continues to do everything possible to find solutions of true long-term benefit to all concerned.

Yours sincerely,

Chris R. Masters
Head of Corporate Communications
National Westminister Bank PLC