Sings of Good Times to Come – Bank lending seen creeping up in UK
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Signs of Good Times to Come

Signs of Good Times to Come

As per the latest Ernst & Young (E&Y) Item Club report the “Bank Lending of loans,” UK business is going to see an upward swing  by the end of 2013. If it does transpire that banks increase loan lending to UK business, it will be for the first time since the 2008 financial crisis which catapulted the markets and economy in turmoil.

The Ernst & Young (E&Y) Item Club report paints a bright picture for the overall United Kingdom economy over the 2013 to 2014 time frame. Furthermore, the report predicts an increase of roughly 3 percent in bank lending to UK-based firms in the current year. In actual currency this would translate to £440 billion. This increase would following a harsh dip in lending by staggering 5 percent  in 2012.

As per the Ernst & Young (E&Y) Item Club report, this upward swing in banks disbursing loans to UK business in 2013 is not an aberration. The Ernst & Young (E&Y) Item Club research team estimates that loan disbursement to the UK-based industry in 2014 will grow further by 8 percent and in actual currency will stand at around £477 billion.

The Ernst & Young (E&Y) Item Club report while delving into the reasons behind this unexpected turnaround in the UK Loans Disbursal scene even while other financial analysts are speculating a triple dip recession in Europe, has sighed the following trends :

(i)                  Appreciable drop in the number of non performing loans that banks are exposed to in 2013

(ii)                Banks have easy and convenient access of wholesale funds which are being leveraged by banks to lend more to UK business

(iii)               Prevailing low interest rates that borrowers are being charged

(iv)               Government's much-touted joint venture scheme initiated between the Bank of England & the UK treasury called “Funding to Lending” designed to increase liquidity for banks to manage new lending to business and households

(v)                Most importantly, the overall manking fundamentals stabilizing & getting better along with wider economy as companies have started seeing improved results

(vi)              Government initiative to rebalance  the UK economy away from consumption-based and move the economy over to a mix of manufacturing-led exports

The Ernst & Young (E&Y) Item Club has predicted that going forward banks will see a progressive dip in “ write offs” by 0.56 percent in 2013 from the peak  of £11.6 billion the banks wrote off as bad loans in 2012. The report opines that this increasing robustness and better sentiment prevailing in the wider UK economy would help propel the UK banks to increase their lending to business.

The Ernst & Young (E&Y) Item Club report strikes a cautionary note to consumers and regulators by highlighting that “the Loan growth forecast is dependent on the interest rate remaining at the current low level and increased forbearance by UK banks in not calling up long pending loans has helped many struggling business to stay afloat”. The report concludes by warning that the UK Banks Loan situation is “finely balanced” and can deteriorate if there is a significant change in the interest regime.

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