Lending set to increase while 'write-offs' drop
BANK lending to businesses across the UK is set to rise for the first time in four years as risk appetite starts to recover, handing a potential lifeline to smaller firms and the UK's growth prospects, experts have claimed.
Although lending shrank by 5% last year, to the lowest level since 2006, the outlook over the next two years appears brighter, according to the Ernst & Young.
The firm predicts that bank lending will grow by 3.5% to £440bn this year, and 8.5% to £477bn in 2014.
Andy Baldwin, head of financial services at Ernst & Young, said: "In recent months much of the media and political attention has focused around banking competition on the high street, and you might be forgiven for thinking we were still in the midst of the banking crisis, but behind the scenes banking fundamentals have quietly been improving, and banks are now in a better position to be able to provide funds to the wider economy."
He added: "Our analysis suggests the main drivers of banks' return to lending will be better access to wholesale funding and a decrease in non-performing loans, rather than the Funding for Lending scheme making a material difference.
"That said, the scheme is making a contribution in shifting emphasis and encouraging lending expansion across the sector, while also helping to restore confidence and stimulate demand from consumers and SMEs [small and medium-sized enterprises] alike."
Total loan write-offs are forecast to fall to just 0.56% of total loans this year, some £9.3bn, having peaked at £11.6bn in 2012. Ernst & Young said write-offs are expected to decline even further over the next few years, meaning that by 2016 they will make up just 0.34% of total loans.
"In some ways the current recession curve has not evolved as you might have expected," Mr Baldwin added.
"We have seen fewer insolvencies and repossessions than before, arguably because banks have continued with these weaker loans rather than foreclosed on them."