Slump in lending to businesses dents economic recovery

Lending has fallen sharply since the banking crisis. Picture: Jon SavageLending has fallen sharply since the banking crisis. Picture: Jon Savage
Lending has fallen sharply since the banking crisis. Picture: Jon Savage

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Bank lending to the private sector has slumped by a fifth since the financial crisis, hampering the return to economic growth, a new study today warns.

The global report by UHY Hacker Young, the accounting and consultancy network, shows that a total of $2.29 trillion (£1.69tn) was lent to businesses in the UK last year, down from $2.87tn in 2008.

By contrast, on average, across all of the 24 countries studied, private sector bank lending increased by 24 per cent over the same period in absolute terms.

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The study notes that small businesses continue to be particularly affected by the ongoing squeeze on lending.

This is partly due to regulators tightening banking rules in response to the financial crisis, forcing major lenders to beef up their balance sheets and hold more capital. With less money available to lend, banks tend to be more likely to focus on lending to larger businesses that they see as having better security and repayment prospects, the report adds.

The UK was among a number of European economies that were the worst affected by the slump in lending.

UHY said Spain and Ireland were particularly badly hit by the financial crisis and are seeing the slowest recovery in private sector credit.

Bank lending to the private sector in Ireland was 69 per cent below 2008 levels last year while in Spain it was 51 per cent lower.

Even in Germany, widely seen as the economic powerhouse of Europe, there was a 21 per cent decrease, falling to some $2.6tn last year from $3.3tn in 2008.

Laurence Sacker, managing partner at UHY Hacker Young, said: “Almost a decade on from the global financial crisis, many British small and medium-sized businesses are still suffering from a shortage of credit.

“As regulators have forced banks to shore up their balance sheets and reduce risk, many SMEs have found their access to lending severely curtailed. While some larger companies may have been able to get around this by accessing the bond market, smaller businesses are unlikely to have that option.

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“Recent economic crises in some eurozone countries and the prospect of Brexit also continue to hit lender confidence.”

He added: “Without the capex they need to fund investment, businesses will struggle to capitalise on growth opportunities or drive innovation, ultimately risking losing ground to global competitors.”

UHY said the G7 group of leading world economies was lagging behind, while the so-called Bric economies power ahead. On average, the G7 saw a 1 per cent decrease in real terms over the period, whereas Brics (Brazil, Russia, India, China) enjoyed an average increase of 209 per cent.

China topped the table, with bank lending to the private sector jumping 270 per cent between 2008 and 2016.

Sacker added: “It’s debatable whether the appetite to lend to Brics and other emerging economies is sustainable.”

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