UK banks lending levels steady but profits down
Lending to businesses by UK banks fell in May but banks expect to keep the credit supply to businesses level over the next three months, according to the quarterly Credit Conditions Survey published by the Bank of England today.
The survey revealed that lending criteria for unsecured personal loans fell slightly for the first time in three years and that demand for credit from businesses has begun to level off. Default rates for unsecured loans have fallen overall apart from credit card borrowing that showed a slight rise that is expected to continue. Default rates for secured lending on dents such as mortgages are expected to increase over the next quarter.
There was a small increase in demand for loans by larger companies and a larger rise in demand from small and medium-sized businesses but this is expected to level off.
The Bank’s report said: “In the three months to early June, lenders reported that the availability of credit to households and corporates was broadly unchanged. Demand for secured lending for house purchase was reported to have increased a little, having sharply declined for two quarters. Within that, demand for buy-to-let lending increased markedly.”
Meanwhile, UK banks have fallen behind their global competitors since the 2008 financial crisis in terms of profitability, according to a report by Banker magazine.
In 2007, before the banking crisis UK banks were second in terms of profitability behind the USA, but they are now the fifth most profitable set of banks having been overtaken by Japan, China and France.
The Banker rates 1,000 of the world’s biggest banks in terms of profitability and capital strength. Due to the financial crisis and the need of some UK banks to be bailed-out by the taxpayer, their balance sheets are not as healthy as they used to be.
Royal Bank of Scotland (RBS) is 84 per cent owned by the UK taxpayer, while 41 per cent of Lloyds has a taxpayer stake in it. The Banker report said that combined pressures of the UK’s poor economy, increased regulations and compensation payments for the mis-selling of payment protection insurance (PPI) were the main causes of the decline in the UK banking sector.
The British banking sector was the envy of the world in the boom years," said Brian Caplen, editor of the Banker.
"It now faces a Herculean task to regain the position of strength it had four years ago.
"The poor state of much of the British banking sector three years after the crisis is a worry, and there are serious doubts over whether the sector will ever recover."
The Banker’s latest rankings saw HSBC lead the way for UK banks, climbing from 5th to 3rd position. However, RBS fell from 5th to 10th position and Lloyds went down to 18th from 12th and Barclays fell from 10th to 12th.
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