Businesses to receive £66bn lending boost by 2018, says EY

Net lending to businesses is poised to return to growth after contracting for six years following the financial crisis, claims an EY ITEM Club research.

Lending to British businesses is poised to return to growth this year following on from six years of contraction, according to the EY ITEM Club’s latest research. In fact, net lending to businesses is expected to rise up to 17 per cent by 2018, which should see UK companies gain an extra £66 billion of credit over the next four years.

This corporate borrowing rebound comes after six years of contractions in the amount of lending to businesses in the UK, where corporate credit fell by 31 per cent or £181 billion since 2008.

“Growth in the UK economy is now filtering into financial services,” said Chris Price, UK head of financial services.

“Banks are poised to resume lending growth, and asset managers and insurers both foresee strong revenue growth,” he added.

Alternative finance firmly rooted

However, as lending from banks to small businesses dried up in the years following the financial crisis and alternative financing blossomed to plug the gap, banks may find there’s now real competition in the corporate lending sector.

“While there is little doubt that traditional bank lending will find its feet again, it looks like the recent lending drought has permanently changed borrowing behaviour,” said Mr Price.

“The challenge for banks now will be regaining market share from the alternative finance providers who have successfully plugged the gap for the last six years,” he explained.

Since 2009, bond issuance grew over 22 per cent and amounted to around £7.5 billion each quarter of 2014. This contrasts highly with bank lending, which averaged in negative figures per quarter last year, meaning companies were repaying more than they were borrowing.

Lending to businesses will be in for an interesting year as banks will seek to reclaim their place as the number one provider of credit to firms, but the alternative finance industry will be loath to give up this spot without a fight.