August 08, 2014
Bank lending to the private sector in the UK is still lagging far behind the G7 average despite all the government’s efforts to boost the availability of credit, according to UHY Hacker Young.
Private sector credit volumes in the UK were down by 2.2% in real terms in the last year, while average lending across the G7 economies increased by 0.1% in real terms according to a new report by the accountancy group.
For the UK’s small businesses, says the report, the credit crunch lingers on.
“Nearly six years on from the start of the banking crisis, we are still seeing virtually no increase in bank lending in the UK,” said Laurence Sacker, partner at UHY Hacker Young.
“This continued drought in bank lending in developed economies is not just a question of appetite – it’s about regulation,” said Sacker. “Anxious to prevent a repetition of the banking crisis, regulators now require banks to hold more capital against their activities, and that is making lending more expensive.”
The continued slump in lending in the UK has hit smaller businesses the hardest, says UHY Hacker Young, as larger companies have been able to access the bond markets to fill the gap in funding. The volume of bond lending in the UK has increased by 35% in the past four years.
Sacker said: “Corporate bonds have long been a good way for larger companies to get the funding they need, but as bank lending has dried up, they have now become a vital tool. Smaller businesses don’t have the same luxury, as issuing bonds can be quite costly in terms of advisory and other fees.”
“Problems over bank funding are far from over,” added Sacker. “Many banks are still unable to lend, especially to smaller businesses, leaving them facing a hidden credit crunch. Initiatives such as Funding For Lending have had a limited impact on small business lending, and if restricted access to funding continues, it risks creating a drag on the UK’s nascent economic recovery.”
In contrast, bank lending has surged in many major emerging economies including Brazil, Russia, India and China.