Credit, Collections & Insolvency News
Bank-to-business lending is forecast to contract 3.8% (net) this year, from net growth of 3.7% in 2022, before returning to growth (of 0.9% net) in 2024 according to research by EY Item Club.
UK assets under management are forecast to grow 2.6% this year and 6.5% in 2024, after a projected fall of almost 11% in 2022. The outlook for business lending is set to improve next year as the economy begins to recover. However, growth remains subdued, and only 0.9% net growth is forecast in 2024 as businesses, especially SMEs, continue to deal with the economic shocks of recent years.
While bank lending to businesses soared during the pandemic as businesses utilised state-subsidised lending schemes (in 2020, growth sat at 8%), and grew in 2022 (3.7%), this year it is forecast to fall into negative territory by almost 4% (-£18.8bn). Borrowing demand is expected to weaken as firms – both large corporates and SMEs – face multiple pressures from higher costs of servicing debt, lower earnings and continued global supply chain disruption.
2024 should see growth in net lending to firms resume as high inflation eases and the economy starts to recover. However, it is likely to be sluggish with EY Item Club forecasting low growth of 0.9%, equating to net lending of £4bn, reflecting the damage to sentiment from the series of economic shocks in recent years. Growth is forecast to then pick up to 3.1% (£15bn) in 2025.
EY also forecasts that write-off rates on business loans will reach 0.8% in 2023, before dipping to 0.6% in 2024 and 0.5% in 2025. This compares with 0.2% in 2021 and 0.3% in 2022. However, the forecast rise for 2023 is still a long way short of rates of 1%-1.5% in the early 2010s, following the financial crisis.
Dan Cooper, UK Head of Banking and Capital Markets at EY, said “With more than 70% of corporate bank loans on variable rates, UK businesses are likely to be affected in the short term by increases in interest rates. SMEs are currently more vulnerable to a rise in loan impairments than larger businesses as they are less able to insulate themselves against higher rates and also because of the volume of bank debt they hold, which has grown since 2019.”
“On a more positive note, many small businesses that took on debt during the pandemic are currently on low interest, fixed rate government-guaranteed loan schemes, which will help them manage their repayments. Corporate balance sheets across the board have also strengthened as stresses associated with the pandemic have eased.”
