‘Bank lending to businesses set to grow this year’

Picture: PA
Picture: PA
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DESPITE a mid-summer blip, bank lending to businesses is still set to grow in 2015 for the first time since the financial crisis, according to the latest EY Item Club forecast for financial services.

After five months of growth, net lending figures plummeted in June as large corporates paid off debt, the study found, but this doesn’t dash hopes that business lending will rise overall this year.

Bank lending to businesses peaked in 2008 at £575bn, but has dropped year-on-year ever since.

However, with the economy growing at a steady pace and business investment set to rise at an annual average of 6.5 per cent over the next three years, the forecast suggests that the days of the lending squeeze are in the past.

Banks are responding to the increased appetite for borrowing, and in the first six months of 2015, injected £103.4bn into UK businesses, compared with £88.6bn in the first half of 2014.

Omar Ali, UK head of Banking and Capital Markets, said: “Consumer credit finally turned the corner in 2014, and now business lending will hopefully follow suit. The rising demand from businesses for new loans is good news for the banks, but the June drop in net lending shows how vulnerable they are to bigger businesses, with access to alternative sources of finance such as bonds, paying off overdrafts in preparation for rising interest rates. At this rate the rise in overall business lending this year will only be marginal. Add further fines on the horizon, the introduction of a banking tax surcharge, ongoing regulatory reform, and the pressure to create more competition to the mix, and you can see why banks won’t be pausing to celebrate yet. The sector needs to continue innovating and exerting tight controls on costs if it hopes to come even close to closing the gap with pre-crisis rates of profitability.”