SME loans fall by £14bn in last year with more pain on the way
Outstanding bank loans to SME’s in the UK fell by £14bn in the year to March with concerns that this figure could fall further due to March’s banking turmoil and mooted regulatory changes.
In the year to March, outstanding bank loans fell to £195bn from £209bn according to Bank of England data sourced by debt advisory firm ACP Altenburg.
The data suggests banks started to rein in funding about a year ago when interest rates began to rise. Altenburg’s Will Senbanjo suggested that the collapses of Credit Suisse and Silicon Valley Bank (SVB) could further reduce lending as banks focus on reducing risk in their lending books.
“Banks were already reducing their lending to SMEs over the last few years. The recent bank collapses may push them to reduce their risk appetite even more,” he said.
Although reduced risk appetite has stymied SME lending, lending to large businesses increased by £14bn in the same period to £336.8bn from £322.1bn.
“During times of economic stress we often see banks pivot away from small businesses in favour of lending to bigger businesses. Until the economic picture starts to become less uncertain, smaller businesses are likely to find bank lending harder to come by,” Senbanjo said.
The news comes as regulators in the UK are considering proposals as part of the Basel 3.1 regulations which would remove existing incentives for SME lending.
Removing the preferential treatment, known as the SME Supporting Factor, will force SME lenders to hold a higher level of capital against loans to the sector.
The proposals have been criticised intensely by business groups who suggest the reforms are “deeply irresponsible”.
Data collected by Oxera for SME lender Allica Bank suggested that the changes could result in a 25 per cent fall in SME lending, or about £44bn.
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SME loans fall by £14bn in last year with more pain on the way