Thursday, 19 May 2016
Wednesday, 14 January 2015
UK Prime Minister: General Election Key For UK’s Economy
The Prime Minister has warned trade finance services that the UK will face economic chaos if it changes economic policy in May.
David Cameron’s warning was laid out in his New Year message, ahead of the general election in May this year. Mr Cameron said the UK’s New Year resolution should be to “stick to the plan” to ensure prosperity, the BBC reports.
“2015 can promise to be a great year for our country – if we make the right choices together,” he said.
Supporting Labour would take the country backwards and jeopardise the recovery, he stated at the beginning of the year. The prime minister claimed the difficult decisions taken since 2010 were beginning to pay off for the UK public. “The global economy remains uncertain, and many countries continue to struggle,” he observed. “And against that backdrop, Britain has a choice: between the competence that has got us this far or the chaos of giving it up, going backwards and taking huge risks.
“So I say this should be our resolution: to stick to the plan, stay on course to prosperity, and keep doing the important, long-term work of securing a better future. Economic success so far had been due to the Conservative party’s “long term plan with some clear values at its heart”.
He was joined in his discussion of the UK’s economic situation by party leaders Ed Millband and Nick Clegg, who also made economic promises in their New Year messages.
Tuesday, 13 January 2015
UK Government Economic Plan For The North-West Revealed
Trade finance could be more forthcoming for businesses in the north-west of the UK following the government’s announcement that more jobs, investment in science and improvements in transport lie at the heart of the economic plan for the region.
The six-point plan includes increasing the long-term growth rate of the area to at least that of the rest of the UK through the establishment of a northern powerhouse with the potential to generate an £18 billion real terms increase in the economy by 2030.
It also intends to make the region a global centre for scientific innovation, focusing on energy, supercomputing, biomedicine and material science, while working to raise employment rates to that of the average in the UK. This will be done through support of the private sector and backing investment in businesses and new start-ups.
David Cameron said: “When you get [a] critical mass of people – it amplifies jobs and ideas and businesses. The cities and towns of the north of England can have that critical mass. If we back their scientists and innovators, if we back their thriving cultural life … and give them powerful elected voices, then we can create a northern powerhouse.”
This comes as the Confederation of British Industry revealed that economic growth in the UK steadied in the three months to December, although the pace did remain above average and it is now expected that it will increase in speed over the next three-month period. This could have a positive effect on those businesses looking at funding avenues for expansion this year.
Sunday, 4 January 2015
Bank of England Trends in Lending October 2014
Trends in Lending
B A N K O F E N G L A N D
Trends in Lending
October 2014
This quarterly publication presents the Bank of England’s assessment of the latest trends in
lending to the UK economy.
It draws mainly on long-established official data sources, such
as the existing monetary and other financial statistics collected by the Bank that cover all
monetary financial institutions, and data collections established since the start of the financial
These data are supplemented by discussions between the major UK lenders and Bank staff,
giving staff a better understanding of the business developments driving the figures, and this
intelligence is reflected in the report.
The major
UK lenders
are Banco Santander,
Barclays,
HSBC, Lloyds Banking Group, Nationwide and Royal Bank of Scotland and together they
accounted for around 70% of the stock of lending to businesses, 75% of the stock of mortgage
lending, and 50% of the stock of consumer credit (excluding student loans) at end-June 2014.
The report also draws on intelligence gathered by the Bank’s network of Agents and from
market contacts, as well as the results of other surveys including the Bank of England’s
Bank Liabilities Survey and Credit Conditions Survey.
The focus of the report is on lending, but
broader credit market developments, such as those relating to capital market issuance, are
discussed where relevant.
The report covers data and intelligence gathered up to end-September 2014. Unless stated
otherwise, the data reported cover lending in both sterling and foreign currency, expressed
in sterling.
See www.bankofengland.co.uk/statistics/Documents/releasecalendar.pdf for future publication dates.
(2) For a fuller background, please refer to the first edition of Trends in Lending available at
www.bankofengland.co.uk/publications/other/monetary/trendsapril09.pdf.
(3) Membership of the group of major UK lenders is based on the provision of credit to UK-resident companies and individuals, regardless
of the country of ownership.
(4) The Bank Liabilities Survey and the Credit Conditions Survey for 2014 Q3 were conducted between 13 August and 8 September.
Contents
Executive summary 3
1 Lending to UK businesses and individuals 4
2 Loan pricing 7
3 Credit supply and demand 10
Box An update to estimates of external finance for UK businesses 12
Glossary and other information 16
Executive summary 3
Executive summary
Over the past six months, the monthly net lending flow to UK businesses has been volatile on a month-to-month basis but, on
average, was broadly close to zero. Mortgage approvals by all UK-resident mortgage lenders for house purchase picked up in June,
before easing back slightly in August. The average monthly net lending flow by UK-resident mortgage lenders was £2.3 billion
in the three months to August, broadly unchanged compared to the previous three months. The annual growth rate in the stock
of consumer credit picked up slightly to 6.1% in August.
Pricing on lending to small and medium-sized enterprises continued to drift down over the past year, according to some
measures. Quoted interest rates on some fixed-rate mortgages at 75% loan to value ratio fell in September. Quoted rates on
some personal loans fell by around 80 basis points since the start of the year.
Contacts of the Bank’s network of Agents noted that credit conditions had remained easy for large corporates and availability
had remained reasonable for many small and medium-sized enterprises. Respondents to the Bank of England’s Credit Conditions
Survey expected demand for bank lending from corporates to increase in 2014 Q4, particularly from medium-sized companies.
Lenders in the survey reported that the availability and demand for secured credit from households fell significantly in Q3.
4 Trends in Lending October 2014
1 Lending to UK businesses and
individuals
Over the past six months, the monthly net lending flow to UK businesses has been volatile on a
month-to-month basis but, on average, was broadly close to zero. Mortgage approvals by all
UK-resident mortgage lenders for house purchase picked up in June, before easing back slightly
in August. The average monthly net lending flow by UK-resident mortgage lenders was £2.3 billion
in the three months to August, broadly unchanged compared to the previous three months. The
annual growth rate in the stock of consumer credit picked up slightly to 6.1% in August.
currency lending)
This section presents a summary of the recent data on lending
to UK businesses and individuals. The twelve-month growth
rate in the stock of loans to UK-resident households and
businesses was broadly unchanged at around 1.7% over the
three months to August.
Lending to UK businesses
Data covering lending by all UK-resident banks and building
societies indicated that over the past six months, the monthly
net lending flow to UK businesses has been volatile on a
month-to-month basis but, on average, was broadly close to
zero. This was in both the all currency loans measure and the
sterling lending measure (PNFC M4Lx), consisting of sterling
loans — included in the all currency measure — and MFIs’
holdings of securities.
A large part of the movement in
(M4Lx measure)
PNFCs’ M4Lx reflected changes in MFIs’ holdings of securities
issued by PNFCs.
The twelve-month rate of growth in these measures of the
stock of lending to PNFCs was negative in August though less
so than at the start of the year (Tables 1.A and 1.B). Similarly,
the rate of contraction in the aggregate stock of lending to
UK non-financial businesses also eased over this period
(Chart 1.1).
Much of the weakness in lending to businesses reflects a
contraction in lending to the real estate sector (Chart 1.1),
which accounts for around 30% of the stock of loans.
In recent months, this was partly offset by positive
contributions to the aggregate growth rate in the stock of
lending from industrial sectors other than the real estate
sector. These include the distribution, professional and other
services, and manufacturing sectors.
For further details on the definitions of these measures of lending to UK businesses
see Bankstats (Monetary and Financial Statistics), August 2014, ‘Measures of lending to
UK businesses’, available at
www.bankofengland.co.uk/statistics/Documents/ms/articles/art1sep14.pdf.
For more details see the box on ‘Trends in lending and capital market issuance, by
major industrial sector’ in July 2014 Trends in Lending, available at
www.bankofengland.co.uk/publications/Documents/other/monetary/trendsjuly14.pdf.
Section 1 Lending to UK businesses and individuals 5
Chart 1.1
Lending to the UK real estate sector and
other businesses
Percentage changes on a year earlier
Other businesses
All non-financial
(a) Lending by UK MFIs. Rates of growth in the stock of lending. Non seasonally adjusted. For
details on the series included in the swathes see tab ‘Chart 1.1 appendix’, available at
www.bankofengland.co.uk/publications/Documents/other/monetary/lendingtoukbusinesses
andindividualsoctober2014.xls.
(b) From January 2011, data are on the SIC 2007 basis. Changes in the SIC codes have led to
some components moving between industries. As a result, growth rates in 2011 may be
Chart 1.2
Estimates of new syndicated lending facilities
granted to UK businesses
Sources: Dealogic and Bank calculations.
(a) Defined broadly as PNFCs. New syndicated lending facilities excluding cancelled or
withdrawn facilities by UK-resident and non-resident lenders. Data are quarterly and cover
lending facilities in both sterling and foreign currency, expressed in sterling. Non seasonally
Chart 1.3
Approvals of loans secured on dwellings
House purchase
(a) Data are for monthly number of approvals covering sterling lending by UK MFIs and other
lenders to UK individuals. Approvals secured on dwellings are measured net of cancellations.
Seasonally adjusted.
6 Trends in Lending October 2014
Chart 1.4
Gross lending secured on dwellings
August. In recent discussions, most of the major UK lenders
reported that operational issues associated with the
Total gross secured lending
implementation of the Mortgage Market Review had pushed
down on approvals over the summer, but had now largely
dissipated.
Total gross secured lending in the three months to August
increased compared to the previous period. In forecasts
published in July 2014, the Council of Mortgage Lenders
(CML) expected gross secured lending by all UK-resident
mortgage lenders in 2014 to be 18% higher than in 2013 and
for lending in 2015 to be 6% higher than in 2014 (Chart 1.4).
The average monthly net lending flow by UK-resident
Sources: CML, Bank of England and Bank calculations.
mortgage lenders was £2.3 billion in the three months to
(a) Total gross lending secured on dwellings. Data cover sterling lending by UK MFIs and other
August (Table 1.C), broadly unchanged compared to the
lenders to UK individuals. Non seasonally adjusted.
(b) The bar for 2014 comprises the CML forecast for the year with data up to August.
previous three months. The annual rate of growth in the
(c) CML forecasts for 2014 and 2015 published in July 2014.
stock of secured lending to individuals rose slightly to 1.7%
in August.
Consumer credit
Total net consumer credit flows (excluding student loans)
were £2.7 billion in the three months to August, similar to the
flows in the previous period. Within this, the net flow of other
unsecured lending was more than double that for credit cards.
The annual growth rate in the stock of consumer credit picked
up slightly to 6.1% in August (Chart 1.5) though remained
below pre-crisis levels. Within this, the annual growth rate in
the stock of other unsecured lending continued to increase,
reaching 6.8% in August.
Chart 1.5
Consumer credit
Percentage changes on a year earlier
Total consumer credit
Other unsecured loans
(a) Sterling lending by UK MFIs and other lenders to UK individuals. Consumer credit consists of
credit card lending and other unsecured lending (other loans and advances) and excludes
student loans. Seasonally adjusted.
Section 2
Loan pricing 7
2 Loan pricing
Pricing on lending to small and medium-sized enterprises continued to drift down over the past
year, according to some measures. Quoted interest rates on some fixed-rate mortgages at 75%
loan to value ratio fell in September. Quoted rates on some personal loans fell by around
80 basis points since the start of the year.
Chart 2.1 Indicative long-term funding spreads
Percentage points
This section discusses recent developments in loan pricing for
businesses and individuals, based on statistical data, survey
evidence and discussions with the major UK lenders.
Senior unsecured
The total cost of bank finance to a company or individual can
Spread on five-year
Spread on three-year
generally be decomposed into the fees charged by the lender
to provide loan facilities, the spread over a given reference rate
(such as three-month Libor or Bank Rate) at which loans are
offered, and the prevailing level of that reference rate in the
financial markets.
An indicative measure of the spread over relevant swap rates
on longer-term bank wholesale debt, secondary market bond
spreads, was on average slightly lower in 2014 Q3 than in the
previous quarter (Chart 2.1). The average of the major
Sources: Bloomberg, Markit Group Limited, Bank of England and Bank calculations.
UK lenders’ five-year credit default swap premia — a proxy for
(a) All data are to 30 September 2014.
the credit risk component of bank funding costs — was also
(b) Constant-maturity unweighted average of secondary market spreads to mid-swaps for the
major UK lenders’ five-year euro senior unsecured bonds, where available. Where a five-year
slightly lower. Respondents to the Bank of England’s 2014 Q3
bond is unavailable, a proxy has been constructed based on the nearest maturity of bond
available for a given institution. The gap in the time series between 1 December 2009 and
Bank Liabilities Survey reported a fall in spreads on ‘other’
11 January 2010 is because no suitable bonds were in issuance in that period.
(c) Spreads for sterling fixed-rate retail bonds over equivalent-maturity swaps. Bond rates are
funding (which includes short and long-term wholesale debt
end-month rates and swap rates are monthly averages of daily rates. The bond rates are
weighted averages of rates advertised by the banks and building societies in the
funding) compared to the previous quarter (Chart 2.2).
Bank of England’s quoted rate sample, for products meeting the selection criteria (see
www.bankofengland.co.uk/statistics/Pages/iadb/notesiadb/household_int.aspx). The series
for the five-year bond is not included for May 2010 and August 2011 to April 2013 as fewer
than three institutions in the sample offered products in these periods.
The swap rate, the fixed rate of interest in a swap contract in
(d) The data show an unweighted average of the five-year senior CDS premia for the major
UK lenders, which provides an indicator of the spread on euro-denominated long-term
which floating-rate interest payments are exchanged for
wholesale bonds.
(e) Constant-maturity unweighted average of secondary market spreads to mid-swaps for the
fixed-rate interest payments, is a key factor in the setting of
major UK lenders’ five-year euro-denominated covered bonds, where available. Where a
five-year covered bond is unavailable, a proxy has been constructed based on the nearest
retail and fixed mortgage rates. Two and three-year swap
maturity of bond available for a given institution.
rates rose slightly in the first part of 2014 Q3 before falling
back in August (Chart 2.3). More generally, swap rates in
September were lower than those in July.
Spreads over equivalent-maturity swap rates on three-year
retail bonds were broadly flat in 2014 Q3 compared to the
previous quarter (Chart 2.1). Respondents to the Bank
Liabilities Survey reported that overall retail funding spreads
fell in 2014 Q3 (Chart 2.2). Looking forward, some major
UK lenders expected retail deposit rates to remain at around
current levels in the coming months.
Corporate loan pricing
The spread over relevant reference rates that SMEs face on
new borrowing can vary widely, taking into account various
8 Trends in Lending October 2014
Chart 2.2 Bank Liabilities Survey: funding spreads
Net percentage balances
business-specific risk and credit quality factors. As a result
there is no single definitive measure of loan pricing: statistical
and survey data can provide broad estimates, but these may
not entirely reflect the true cost of credit faced by SMEs.
Pricing on lending to SMEs has continued to drift down,
according to some measures. Indicative median interest rates
(Chart 2.4) and spreads on new variable-rate facilities to all
small and medium-sized enterprises fell by around 10 basis
points over the past year, according to survey data from the
Department for Business, Innovation and Skills (BIS). The
Federation of Small Businesses’ Voice of Small Business Index
2014 Q3 reported that 45% of firms that were approved a
(a) Net percentage balances are calculated by weighting together the responses of those lenders
loan were offered an interest rate of 4% or less, compared to a
who answered the question. The bars show the responses over the previous three months.
The diamonds show the expectations over the next three months. Expectations balances
little over 30% of firms a year ago. The Bank’s measure of
have been moved forward one quarter. Where the Bank Liabilities Survey and
Credit Conditions Survey are discussed, descriptions of a ‘significant’ change refer to a net
effective rates on new corporate lending for advances of
percentage balance greater than 20 in absolute terms, and a ‘slight’ change refers to a net
percentage balance of between 5 and 10 in absolute terms.
£1 million or less — an indicator of pricing on loans to smaller
(b) Question: ‘How has the average cost of funding changed?’. A positive balance indicates an
increase in funding spreads.
businesses — fell in the year to August 2014 (Chart 2.4).
Chart 2.3
Swap rates at different maturities
Spreads over reference rates on new lending to small
businesses remained unchanged in 2014 Q3 according to
lenders in the Bank of England’s Credit Conditions Survey
(Chart 2.5). Respondents continued to report that for
medium-sized firms they had fallen significantly.
Pricing on lending to large companies remained
favourable, according to survey evidence. The balance of
respondents to the Deloitte CFO Survey — which covers large
companies — reporting the cost of credit to be ‘cheap’
increased slightly in 2014 Q3 to its highest level since the
survey began in 2007 Q3. Respondents to the 2014 Q3 Credit
Conditions Survey reported that spreads on new lending to
Sources: Bloomberg and Bank calculations.
large businesses fell significantly (Chart 2.5). Lenders in the
(a) Sterling swap rates. Swap rates are monthly averages of daily data. Data are to
end-September 2014.
survey noted that non-price terms (the average of balances for
Chart 2.4 Indicative interest rates on lending to SMEs
maximum credit lines, fees and commissions and loan
covenants) had loosened significantly for these corporates.
In recent discussions, the major UK lenders reported that
intense competition was leading to further downward pressure
on price and non-price terms for large businesses.
Looking forward, respondents to the Credit Conditions Survey
expected spreads on new business lending in 2014 Q4 to fall
significantly for both medium-sized and large companies and
£1 million or less
for spreads for small businesses to be unchanged (Chart 2.5).
Mortgage pricing
The proportion of new mortgage business at fixed rates
increased over the past few years from 64% in 2012 to 88%
Sources: BIS, Bank of England and Bank calculations.
in 2014 Q2. As more new business secured on dwellings was
(a) These indicative rates do not reflect the impact of cashback deals or fees. Data for Bank Rate are
to end-September and for all other series to end-August. Non seasonally adjusted.
undertaken at fixed rates, the share of fixed-rate products in
(b) Median by value of SME facilities (new loans, new and renewed overdrafts) priced at margins over
base rates, by four major UK lenders (Barclays, HSBC, Lloyds Banking Group and Royal Bank of
the stock of mortgage lending increased from 29% to 38%
Scotland). Data cover lending in both sterling and foreign currency, expressed in sterling.
(c) Smaller SMEs are businesses with annual debit account turnover on the main business account less
over the same period.
(d) Medium SMEs are businesses with annual debit account turnover on the main business account
between £1 million and £25 million.
(e) Weighted average of new lending to PNFCs of all sizes by UK MFIs for advances less than or equal
to £1 million, an indicator of pricing for small business loans. Data cover lending in sterling. The
For more details see the box on ‘Recent trends in lending to small and medium-sized
enterprises’ in July 2013 Trends in Lending, available at
Bank’s effective interest rates series are currently compiled using data from 23 UK MFIs.
www.bankofengland.co.uk/publications/Documents/other/monetary/trendsjuly13.pdf.
Section 2
Loan pricing 9
Credit Conditions Survey: spreads over
reference rates on lending to corporates by firm size
The Bank’s measure of the effective rate on new mortgages
was broadly unchanged over the three months to August.
Net percentage balances
Within this, the effective fixed-rate ticked up.
Small businesses
Medium PNFCs
The quoted interest rates on two and five-year fixed-rate
mortgages at 75% loan to value (LTV) ratio fell by 9 and
15 basis points respectively between end-August and
end-September 2014, having been unchanged in the previous
month (Chart 2.6). With equivalent maturity swap rates
having fallen by a similar amount between July and September
(Chart 2.3), spreads on these 75% LTV ratio products were
little changed. The quoted interest rate on the two-year 90%
LTV ratio product fell by 24 basis points over this period, such
that the spread over the two-year swap rate reduced. In
recent discussions with the major UK lenders, falling swap
(a) See footnote (a) to Chart 2.2. A positive balance indicates that spreads over reference rates
rates and increased competition were both mentioned as
have fallen, such that all else being equal it is cheaper for corporates to borrow.
(b) Small businesses are defined as those with annual turnover of less than £1 million;
factors contributing to the decline in some mortgage rates
medium-sized corporates are defined as those with annual turnover of between £1 million
and £25 million; and large corporates are defined as those with annual turnover of over
in September.
Chart 2.6
Quoted interest rates on fixed-rate and
Quoted interest rates on some floating-rate products, such as
floating-rate mortgages
the standard variable (Chart 2.6) and lifetime tracker rates,
were broadly unchanged over 2014 Q3. With Bank Rate
unchanged, spreads on these floating-rate mortgages were
90% loan to value,
two-year fixed
95% loan to value,
two-year fixed
little changed. In some contrast, the two-year 75% variable
rate fell by 31 basis points in September.
Consumer credit pricing
Quoted rates on some personal loans fell by around
80 basis points since the start of the year (Chart 2.7).
75% loan to value,
five-year fixed
75% loan to value,
two-year fixed
Respondents to the 2014 Q3 Credit Conditions Survey
expected a slight narrowing in spreads on other unsecured
lending in Q4.
The quoted rate on credit cards was little changed in 2014 Q3
(a) Sterling. The Bank’s quoted interest rates series are currently compiled using data from up
to 23 UK MFIs. End-month rates. Non seasonally adjusted.
(b) This series was not available between March and May 2009 as fewer than three products
were offered in that period.
(c) This series was not available between May 2008 and September 2013 as fewer than
(Chart 2.7). Respondents to the 2014 Q3 Credit Conditions
Survey noted that competition in this market continued to be
centred around the length of balance transfer offers.
three products were offered in that period.
Chart 2.7 Quoted interest rates on consumer credit
Personal loan (£5,000)
Personal loan (£10,000)
(a) Sterling. The Bank’s quoted interest rates series are currently compiled using data from up
to 23 UK MFIs. End-month rates. Non seasonally adjusted.
(b) This series does not include 0% introductory offers on credit cards.
10 Trends in Lending October 2014
3 Credit supply and demand
Contacts of the Bank’s network of Agents noted that credit conditions had remained easy for large
corporates and availability had remained reasonable for many small and medium-sized enterprises.
Respondents to the Bank of England’s Credit Conditions Survey expected demand for bank lending
from corporates to increase in 2014 Q4, particularly from medium-sized companies. Lenders in the
survey reported that the availability and demand for secured credit from households fell
significantly in Q3.
Credit Conditions Survey: availability and
demand for credit across firm sizes
The amount of lending and its price depend on the interaction
of demand and supply factors. Disentangling the separate
influences of changes in the supply of, and demand for, credit
Net percentage balances
is difficult though survey data can help. This section looks at
Small businesses
Medium PNFCs Larg
recent trends in credit supply and demand, drawing on
surveys, reports from the Bank’s network of Agents, and
discussions with the major UK lenders.
Credit conditions for businesses
The overall availability of credit to the corporate sector was
broadly unchanged in 2014 Q3, according to respondents to
the Bank of England’s Credit Conditions Survey. Lenders in the
survey reported that credit availability was unchanged for
medium-sized companies and large corporates (Chart 3.1).
The balance of respondents to the Deloitte CFO Survey
(a) See footnote (a) to Chart 2.2 (for this chart lines rather than bars are used to show the
responses over the previous three months) and footnote (b) to Chart 2.5. A positive balance
indicates that more credit is available or an increase in demand.
(b) Questions on small businesses were introduced in 2009 Q4.
(c) Questions on the availability of credit to medium and large PNFCs were introduced in
2014 Q3 — which covers large companies — who reported
that credit was ‘available’ remained close to 80% (Chart 3.2),
the highest since the survey began in 2007 Q3.
Chart 3.2
Deloitte CFO Survey: cost and availability of
Credit availability fell slightly for small businesses in 2014 Q3
according to respondents to the Credit Conditions Survey
Net percentage balances
(Chart 3.1). The Federation of Small Businesses’ Voice of Small
Business Index 2014 Q3 reported that 52% of small firms in
the survey found that the availability of credit was ‘poor’ or
‘very poor’, down from 75% two years ago, and around half
believed that credit was unaffordable.
Contacts of the Bank’s Agents noted that credit conditions
had remained easy for large corporates. Contacts also
reported that availability had remained reasonable for many
SMEs, apart from very small firms or for those operating in
certain sectors such as housebuilding or hospitality.
Lenders in the Credit Conditions Survey reported that demand
(a) Net percentage balances for the cost of credit are calculated as the percentage of
respondents reporting that bank credit is ‘costly’ less the percentage reporting that it is
for bank lending from small businesses fell in 2014 Q3
‘cheap’. Net percentage balances for the availability of credit are calculated as the
percentage of respondents reporting that credit is ‘available’ less the percentage of
(Chart 3.1). More generally, the proportion of SMEs not
respondents reporting that it is ‘hard to get’. A positive balance indicates that a net balance
of respondents report that credit is ‘costly’ or credit is ‘available’.
seeking finance (bank loans, overdrafts) in the previous
Section 3
Credit supply and demand 11
Credit Conditions Survey: availability of
secured credit to households
twelve months was 78% in 2014 Q2 and similar to the previous
quarter, according to the SME Finance Monitor.
Net percentage balances
Availability to borrowers with
more than 75% LTV ratio
Respondents to the 2014 Q3 Credit Conditions Survey reported
that demand for bank lending increased significantly from
medium-sized companies and also increased from large
corporates (Chart 3.1). In recent discussions, most major
UK lenders noted that demand for credit from large corporates
was largely for refinancing purposes to secure lower rates.
Looking forward, lenders in the Credit Conditions Survey
expected overall credit availability to remain unchanged in
2014 Q4. Respondents to the survey expected demand for
bank lending from corporates to increase in Q4, particularly
from medium-sized companies.
(a) See footnote (a) to Chart 2.2. A positive balance indicates that more credit is available.
Credit conditions for households
After eight consecutive quarters of expansion, the availability
of secured credit to households fell significantly in the three
Chart 3.4
household secured lending
months to early September, according to respondents to the
Credit Conditions Survey (Chart 3.3). Many lenders in the
survey noted that operational issues associated with the
House purchase
Net percentage balances
implementation of the Mortgage Market Review had pushed
down on credit availability over the summer. Lenders in the
survey also reported that credit availability for borrowers with
LTV ratios above 75% fell, and they had become less willing to
lend at LTV ratios above 90%. Looking ahead, the availability
of secured credit was expected to increase over the next
three months.
Demand for secured lending for house purchase and
remortgaging was also reported to have fallen significantly
over the past quarter, according to respondents to the Credit
Conditions Survey (Chart 3.4). The Royal Institution of Chartered
Surveyors’ (RICS) new buyer enquiries balance became negative
(a) See footnote (a) to Chart 2.2. A positive balance indicates an increase in demand.
in 2014 Q3, consistent with a fall in demand for house purchase
(Chart 3.5). Lenders in the Credit Conditions Survey expected
demand for secured credit for house purchase and remortgaging
to increase in 2014 Q4 (Chart 3.4). In recent discussions, some
Chart 3.5
RICS Residential Market Survey: new buyer
major UK lenders noted that they were particularly uncertain
enquiries
about the pace of underlying demand for secured lending.
Net percentage balance
Respondents to the Credit Conditions Survey indicated that the
amount of unsecured credit made available to households
increased in 2014 Q3. Lenders expected a further rise in the
availability of unsecured credit in 2014 Q4.
Demand for credit card lending increased in 2014 Q3, according
to respondents to the Credit Conditions Survey. Lenders reported
that demand for other unsecured lending products, such as
personal loans, was unchanged. Demand for credit card and
other unsecured lending was expected to increase significantly
over the next three months, according to lenders in the survey.
2009 10 11 12 13
(a) Net percentage balance for new buyer enquiries is calculated as the proportion of
respondents reporting an increase in enquiries over the previous month, less the proportion
reporting a decrease. A positive balance indicates an increase in enquiries. Seasonally
These SMEs are those that had not had a borrowing event, and also said that nothing
had stopped them from applying for any (future) loan/overdraft funding in the
previous twelve months.
12 Trends in Lending October 2014
An update to estimates of external finance for
reflected a buoyant initial public offering (IPO) market,
UK businesses
according to market contacts. The value of total UK IPO
issuance in 2014 Q2 was the largest since the start of the data
There are many sources of finance for businesses for working
capital, capital investment and other purposes. Recent trends
in external finance for UK businesses were discussed in the
collection in 1984 Q2.
2014 H1 was positive for the first time since the second half
of 2010, according to Bank of England data (Chart A).
October 2013 edition of Trends in Lending.
existing statistics collected by the Bank of England,
Chart A Net external finance raised by UK businesses
from banks and capital markets
consultations with officials from the Department for Business,
Innovation and Skills (BIS) and HM Treasury (HMT), and wider
Commercial paper
information. The analysis concluded that debt financing from
banks and capital markets was a significant proportion of
external finance raised by all businesses. The available data
suggested that some alternative types of external funding
were of a reasonable size and growing, including asset-based
finance and lending by insurance companies and pension
This box presents updated estimates, where available, of
external finance for 2013 and 2014, drawing on
Bank of England statistics, consultations with officials from
BIS and HMT and other information (Tables 1 and 2). It
also includes new estimates on the flows of peer-to-peer
(a) Finance raised by PNFCs from MFIs and capital markets. Bonds data cover debt issued by
UK companies via UK-based Issuing and Paying Agents. Data cover funds raised in both
lending/crowdfunding, which were unavailable last year. No
sterling and foreign currency, expressed in sterling. Seasonally adjusted. Bonds, equity and
commercial paper are non seasonal.
updated estimates were available for private equity, business
(b) Owing to the seasonal adjustment methodology, this series may not equal the sum of its
angels and private placements.
The stock of debt finance raised by all businesses from banks
and capital markets (Table 1) remained a significant
proportion of external finance as at 2014 Q2. Gross bank
lending by monetary financial institutions (MFIs) to UK
non-financial businesses remained substantial in 2013 and
Gross bond and equity issuance by
Gross bond issuance in 2014 H1 was lower than that in
2013 H1 (Chart B). Net bond issuance was close to zero in
the year to 2014 H1, in contrast to positive issuance in the
previous three years (Chart A). It increased in the first two
months of Q3, as noted in Section 1, alongside positive net
issuance of commercial paper.
corporate businesses was also significant. These flows were
larger than those from alternative and newer sources of
funding, such as peer-to-peer business lending.
The vast majority of gross flows of external finance raised by
UK businesses in recent years were from bank lending and
capital market issuance, based on available data (Chart B and
Data on lending flows
The flow and cost of funding available from the different
sources of external finance is relevant for businesses’ decisions
Table 2). The largest flow of external finance raised was bank
lending to large businesses. The flow of new asset finance
(leasing and hire purchase) was smaller in comparison, though
on working capital, capital investment and other purposes.
For more details see the box ‘Estimates of sources of external finance for
Gross bank lending to non-financial businesses by MFIs was
£120 billion in 2014 to August (Table 2), 19% higher than the
UK businesses’ on pages 12–16 in October 2013 Trends in Lending, available at
www.bankofengland.co.uk/publications/Documents/other/monetary/
trendsoctober13.pdf.
comparable period in 2013. Repayments by these businesses
to MFIs also increased. Net bank lending to businesses
For brief descriptions of the terms used in this box see Table 1 of the October 2013
Trends in Lending box on page 12, available from the link in footnote (1).
The data on gross lending by MFIs are sourced from the Bank of England and include
remained negative in 2013 and 2014 to August (Tables 1.A,
loans, overdrafts and finance leases granted if on the MFI’s balance sheet. For more
details see ‘Explanatory notes — monetary financial institutions loans to
1.B and 2).
non-financial businesses, by size of business’, available at
www.bankofengland.co.uk/statistics/Pages/iadb/notesiadb/
loans_to_non-financial_businesses.aspx.
Larger businesses have greater access to alternative types of
For more details see ‘Markets and operations’, Bank of England Quarterly Bulletin,
Vol. 54, No. 3, page 325, available at
funding such as capital markets. Gross equity issuance by
www.bankofengland.co.uk/publications/Documents/quarterlybulletin/2014/
UK private non-financial corporations (PNFCs) was larger in
For a description of recent trends in capital market issuance by major industrial
2014 to September than in each of the previous four years,
according to data from Dealogic (Table 2). This partly
sector, see the box on pages 7–9 in July 2014 Trends in Lending, available at
www.bankofengland.co.uk/publications/Documents/other/monetary/
trendsjuly14.pdf.
An update to estimates of external finance for UK businesses 13
was slightly higher in 2014 H1 compared to 2013 H1. Some of
each of bank lending and bond issuance as ‘attractive’ sources
this lending is likely to be to small and medium-sized
of funding, similar to recent quarters. Respondents to the
enterprises (SMEs).
survey also viewed equity issuance as an ‘attractive’ source of
funding in 2014 Q3, as they have for over a year.
SMEs can also use other types of external finance such as
peer-to-peer lending/crowdfunding. Flows of peer-to-peer
business lending increased in 2014 Q2 compared to the
previous quarter, though at £0.3 billion for the first half of
2014 were small compared to gross bank lending to SMEs
(Chart B). Flows of other forms of peer-to-peer
lending/crowdfunding, such as equity-based and reward-based
crowdfunding, were very small in 2013 (Table 2).
Capital markets are not commonly used by medium-sized
businesses for external finance, according to a survey
conducted by the British Business Bank in 2013.
Respondents to the survey — those with annual turnover
between £10 million and £500 million — reported that the
most widely used forms of external finance were trade credit
(59%), leasing or hire purchase (52%) and credit cards (46%).
Respondents also reported using a range of different loan
facilities, including overdrafts (32%).
Chart B Gross flows of external finance for
UK businesses, 2013 H1–2014 H1
The proportion of SMEs using only bank loans, bank overdrafts
or credit cards declined between 2011 and 2014 H1 from 29%
Bank lending to
large businesses
to 20%, according to the SME Finance Monitor (Chart C).
Notwithstanding this, these ‘core’ products remained the
most used option for those using external finance. The share
of respondents to the survey using ‘other’ forms of finance
(eg leasing, hire purchase or vehicle finance) remained broadly
similar over this period. More generally, the proportion of
SMEs using neither ‘core’ products or ‘other’ forms of finance
Asset finance (leasing
and hire purchase)
increased slightly over this period.
business lending
Use of external funding by SMEs
Sources: Dealogic, Finance & Leasing Association, Peer-to-Peer Finance Association,
Bank of England and Bank calculations.
(a) For further details on the data sources, see Table 2 on page 15.
(b) Data can include some invoice trading. ‘Not known’ indicates that there were no half-yearly
Data on stocks of lending
The stock of lending to UK PNFCs by UK banks and
building societies was £399 billion as at end-August 2014
and UK businesses had £318 billion of corporate bonds
outstanding as at 2014 Q2 (Table 1). The stock of lending by
insurance companies and pension funds continued to be a
reasonable size at £36 billion.
The stock of asset-based finance was smaller, though grew by
Source: SME Finance Monitor 2014 Q2.
10% in the year to end-June 2014, according to data from the
(a) The proportion of SMEs responding to the question: ‘Which of the following forms of
Asset Based Finance Association (Table 1). Around 40% of the
external finance does the business currently use?’. ‘Core’ products are bank overdrafts, bank
loans/commercial mortgages and credit cards. ‘Other’ forms of finance are leasing, hire
total outstanding advances were to businesses with annual
purchase or vehicle finance, loans/equity from directors/family/friends, invoice finance,
grants and loans from third parties. ‘None’ refers to SMEs not using either ‘core’ or ‘other’
turnover of over £50 million. Data on the stocks of other
forms of finance. The components may not sum to 100% due to rounding.
forms of finance raised, such as private equity, were
Trade credit was also reported to have been used by 30% of
unavailable.
SMEs in 2014 H1, according to the SME Finance Monitor.
When combined with those respondents who reported using
Qualitative information
A number of surveys provide qualitative information on
various external funding sources. The Deloitte CFO Survey
Available at http://british-business-bank.co.uk/performance/british-business-bank-
research-medium-sized-businesses-access-finance-lessons-tomorrows-medium-
sized-businesses/.
for 2014 Q3 — which covers large companies — reported that
Trade credit occurs when a company buys goods or services from a supplier with an
agreement to pay later.
a balance of around 75% of respondents to the survey viewed
Available at www.sme-finance-monitor.co.uk/.
14 Trends in Lending October 2014
‘core’ and ‘other’ sources of finance in the survey, around half
look at lending opportunities that other banks had turned
of SMEs reported using some form of external finance in
this period.
Some main external financing options, such as bank lending,
Contacts of the Bank’s network of Agents continued
asset-based finance and leasing and hire purchase, are
to report a growing use of non-bank finance by SMEs,
generally used by all types of businesses. For details on the
including peer-to-peer lending and crowdfunding. Contacts
use of various external funding sources by business size, see
noted that these non-traditional funding providers were
Table 2 in October 2013 Trends in Lending. Overall, the use by
often more expensive than high street banks, but could
business size has not materially changed over the past year.
provide funds more flexibly or quickly, and were willing to
Amounts outstanding
Total non-financial businesses
Asset-based finance (eg factoring and invoice discounting)
Asset Based Finance
Total advances
£0–£10 million
£10 million–£50 million
Over £50 million
(a) The information contained in this table should be viewed as indicative as data and definitions are not directly comparable across different sources. Stock data are as at end-December, unless stated otherwise. Non seasonally
adjusted. For a description of the terms used see Table 1 of the box 'Estimates of sources of external finance for UK businesses' in October 2013 Trends in Lending, available at
www.bankofengland.co.uk/publications/Documents/other/monetary/trendsoctober13.pdf.
(b) Amounts outstanding data include overdrafts and loans in both sterling and foreign currency, expressed in sterling. Non seasonally adjusted. Movements in amounts outstanding can reflect breaks in data series as well as
underlying flows. For further details see www.bankofengland.co.uk/statistics/Pages/iadb/notesiadb/Changes_flows_growth_rates.aspx. For changes and growth rates data, please use the appropriate series or data tables from
Bankstats, available at www.bankofengland.co.uk/statistics/Pages/bankstats/current/default.aspx.
(c) Loans by UK-resident MFIs to PNFCs excluding the effects of securitisations and loan transfers.
(d) Loans by UK-resident MFIs to UK non-financial businesses. Data for 2009 and 2010 are not directly comparable to later years. The total may not equal the sum of its components due to rounding.
(e) SMEs are defined as those businesses with annual debit account turnover less than £25 million. Large businesses are defined as those with annual debit account turnover greater than £25 million.
(f) Release United Kingdom Economic Accounts, Q2 2014, Chapter 3.3.9, Office for National Statistics. Available at www.ons.gov.uk/ons/rel/naa1-rd/united-kingdom-economic-accounts/q2-2014/bod-ukea-2014q2.pdf. Data are
not directly comparable to gross and net bond issuance data in Table 2.
(g) Release MQ5 Q2 2014, Table A, Office for National Statistics. Stock data are holdings at market value of loans to UK borrowers. For 2013 and 2014, stock data are calculated by adding quarterly flows to the previous year’s
stock. Available at www.ons.gov.uk/ons/rel/fi/mq5--investment-by-insurance-companies--pension-funds-and-trusts/q2-2014/rft-mq5-ref-tables-q2-2014.xls.
(h) Available at www.abfa.org.uk/members/statistics.asp.
(i) Data cover the UK and Irish markets and are presented in client annual turnover bands. The total may not equal the sum of its components due to rounding.
An update to estimates of external finance for UK businesses 15
Bank lending
Total non-financial businesses
Private placements
Breedon Report
UK issuers account for nearly 21% of the global private investment market, though the majority of these issues are placed with US-based
investors. If UK institutional investors invested in private placements in the same proportion as US private placement investors, an
additional £15 billion of non-bank lending could be available for mid-sized businesses in the United Kingdom.
(a) The information contained in this table should be viewed as indicative as data and definitions are not directly comparable across different sources. There can be some double counting across estimates. Flows data are cumulative
totals for the year or to the date stated. Non seasonally adjusted. Most numbers have been rounded to the nearest billion. For a description of the terms used, see Table 1 of the box 'Estimates of sources of external finance for
UK businesses' in October 2013 Trends in Lending, available at www.bankofengland.co.uk/publications/Documents/other/monetary/trendsoctober13.pdf.
(b) Data include overdrafts and loans in both sterling and foreign currency, expressed in sterling.
(c) Loans by UK-resident MFIs to PNFCs excluding the effects of securitisations and loan transfers.
(d) Loans by UK-resident MFIs to UK non-financial businesses. For more details see Bankstats Table A8.1, available at www.bankofengland.co.uk/statistics/Pages/bankstats/default.aspx. The total may not equal the sum of its
components due to rounding.
(e) SMEs are defined as those businesses with annual debit account turnover less than £25 million. Large businesses are defined as those with annual debit account turnover greater than £25 million.
(f) Data are not comparable to gross issuance data in this table due to the different sources.
(g) Release MQ5 Q2 2014, Table A, Office for National Statistics. Flows data are net investment and are calculated as the change in stock. Available at
www.ons.gov.uk/ons/rel/fi/mq5--investment-by-insurance-companies--pension-funds-and-trusts/q2-2014/rft-mq5-ref-tables-q2-2014.xls.
(h) Data exclude overdrafts and cover loans in both sterling and foreign currency, expressed in sterling. See footnote (e) for definitions of SMEs and large businesses. The total may not equal the sum of its components due to
rounding. For net lending data excluding overdrafts see Bankstats Table A8.1, available from the link in footnote (d).
(i) Bond issuance data may include issuance via the Order book for Retail Bonds (ORB). Data are not comparable to net issuance data in this table due to the different sources.
(j) Available at www.financeleasingassociation.co.uk/wp-content/uploads/2014/03/FLA_keyfacts2012.pdf and via www.fla.org.uk/media.
(k) Available at www.bvca.co.uk/portals/0/library/files/news/2013/RIA_2012.pdf. The data include Management Buy Outs (MBO) and expansion capital for larger businesses.
(l) Data for 2011–13 are from Nesta, available at www.nesta.org.uk/publications/rise-future-finance. 2013 data were captured between 25 November and 5 December and incorporate expected volumes for the remainder of the
year. Peer-to-peer business lending is debt-based transactions between individuals and existing businesses who are mostly SMEs. Invoice trading is firms selling invoices or receivables to a pool of individuals or institutional
investors. Equity-based crowdfunding is the sale of registered securities by mostly early-stage firms to investors. Reward-based crowdfunding are transactions where donors have an expectation that recipients will provide a
tangible (but non-financial) reward or product in exchange for their contribution.
(m) Data on new peer-to-peer business lending for 2014 are from the Peer-to-Peer Finance Association, available at http://p2pfa.info/about-p2p-finance. Data can include some invoice trading.
(n) Available at www.ukbusinessangelsassociation.org.uk/investors/background-angel-investment.
(o) Data from Breedon, T (2012), Boosting Finance Options for Business: Report of industry-led working group on alternative debt markets, available at
www.bis.gov.uk/assets/biscore/enterprise/docs/b/12-668-boosting-finance-options-for-business.pdf.
16 Trends in Lending October 2014
Abbreviations
London interbank
The rate of
which banks
BIS — Department for Business, Innovation and Skills.
offered rate (Libor)
borrow funds
from each other,
CDS — credit default swap.
marketable size,
in the London
CFO — chief financial officer.
interbank
CML — Council of Mortgage Lenders.
UK lenders
Barclays,
FLS — Funding for Lending Scheme.
Nationwide and
HMT — HM Treasury.
Scotland.
Libor — London interbank offered rate (see below).
Monetary financial
grouping comprising banks
LTV ratio — loan to value ratio (see below).
institutions
and building societies.
M4Lx — Sterling M4 lending excluding the effects of
Mortgage lending
secured against
securitisations etc.
the value of
dwellings.
MFIs — monetary financial institutions (see below).
The difference between gross
ONS — Office for National Statistics.
and repayments
in a given
PNFCs — private non-financial corporations (see below).
RICS — Royal Institution of Chartered Surveyors.
(and partnerships)
SIC — Standard Industrial Classification.
corporations
whose primary activity is
SMEs — small and medium-sized enterprises.
(PNFCs)
non-financial
controlled by central or local
Glossary
government.
Bank Rate
The official rate paid on commercial
Reference rate
The rate on which loans
bank reserves by the Bank of England.
the reference rate
Businesses
Private non-financial corporations.
(typically this
Consumer credit
Borrowing by UK individuals to finance
a swap rate).
expenditure on goods and/or services.
Remortgaging
whereby borrowers
Consumer credit is split into two
mortgage in favour
components: credit card lending and
new one secured on the same property.
‘other’ lending (mainly overdrafts and
A remortgage would represent
other loans/advances).
an existing property by a
Effective interest
The weighted average of calculated
mortgage lender.
interest rates on various types of
Specialist/other
Providers
mortgage loans
sterling deposit and loan accounts.
mortgage lenders
generally fall
outside the
The calculated annual rate is derived
mainstream mortgage lending.
from the deposit or loan interest flow
Swap rate
The fixed rate of
in a swap
during the period, divided by the
in which floating-rate interest
average stock of deposit or loan during
fixed-rate
the period.
Swap rates
An agreement in which a lender sets
key factor
in the setting of
out the conditions on which it is
fixed mortgage rates.
prepared to advance a specified
Syndicated loan
A loan granted by a group of
amount to a borrower within a defined
single borrower.
Gross lending
The total value of new loans advanced
and conventions
by an institution in a given period.
where otherwise stated the source of
data in charts
Loan approvals
Lenders’ firm offers to advance credit.
the Bank
England.
Loan to value (LTV)
Ratio of outstanding loan amount to
the market value of the asset against
On the horizontal axes of charts, larger ticks denote the first
which the loan is secured (normally
observation within the relevant period, eg data for the first
residential or commercial property).
Last quarter of the year.
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