Yahoo Finance Banks expect to cut business lending at fastest rate since 2008 crash
Banks expect to cut their lending to businesses in the run-up to Christmas at a rate not seen since the financial crash a decade ago.
A survey of the banking sector by the Bank of England showed that banks plan to reduce their lending in response to rising defaults and a fall in demand.
The central bank’s credit conditions survey asks lenders every quarter about the past three months and their expectations for the coming three months.
Analysts said the figures revealed a growing caution across the finance industry as Brexit uncertainty weighed on their customers’ appetite for credit and pushed some to the edge of bankruptcy.
The balance of banks expecting to increase lending over the next three months fell from -5.8% in the third quarter to an expected -13.5% in the fourth quarter to reach its lowest level since 2009 when the balance dropped to almost -50%. In the first quarter the balance was -3.1%.
Banks have seen the biggest collapse in demand from commercial property companies, coinciding with the downturn in retail spending, which has hit shops and retail developments.
The Bank of England said banks kept credit lines open for smaller and large businesses in the third quarter but had seen an increasing reluctance among medium-sized businesses to extend loans.
“Lenders reported a slight decrease in demand for corporate lending from small and large businesses, and a decrease in demand from medium businesses in the third quarter” it said.
Individuals are also expected to find it more difficult to get credit over the next three months as banks and building societies cut the length of interest-free periods on new credit card lending.
The survey also found there was an increase in defaults on credit cards and other non-mortgage loans in the third quarter. Lenders expect default rates for non-mortgage lending to increase slightly in the fourth quarter.
Michael Biemann, the head of property lender Selina Finance, said: “It’s a concern that default rates on credit cards and loans rose in the third quarter, and equally worrying that lenders expect even more people to start having problems with their repayments in the upcoming quarter.
“With money so cheap, there is a lot of debt out there and the worry is that for some people it is starting to prove too much, and at just the wrong time as we enter a potentially tough period for the economy.”
He said all sizes of business were suffering from Brexit uncertainty and reining in their borrowing.
“While there are many reasons why businesses start to struggle, the impact of Brexit uncertainty cannot be ignored and is likely to be the deciding factor in the current cycle.”
