Another drop in lending by banks to businesses

Recently released figures have shown that for the month of April the level of lending by UK banks to non financial businesses fell, with lending falling by £1.1 billion. The figures were released by the British Bankers’ Association, and officials said that whilst April marked another fall in business lending the level of the drop was smaller than those seen in the previous six months.

In the past six months the average decline seen over the period was £1.6 billion per months, so the April drop is significantly lower. Industry groups and government officials have been urging banks to lend more to businesses because of the importance to the economy, and the drop in lending seen in April has been put down to a number of factors.

The British Bankers’ Association has claimed that part of the reason that borrowing to businesses has fallen is because there is a lower demand for finance from UK businesses, as many are exercising caution when it comes to borrowing. The BBA said that figures from the Bank of England showed that corporate deposits had been rising sharply.

However, other industry official believe that it is not just lack of demand that is hindering lending from banks but also the fact that many businesses are struggling to get finance from banks even in cases where they need to borrow the money. On a separate note the level of net mortgage lending from banks also fell in April, dropping to £1.8 billion.

Economist, Ed Stansfield, stated: “April’s soft mortgage lending data add weight to the idea that last year’s upturn in approvals overstated the underlying health of the housing market. Moreover, since the looming fiscal austerity measures will keep a lid on mortgage demand while the uncertain funding outlook will limit the supply of mortgage credit, weak lending looks set to remain the norm for some time.”

Tags: finance, mortgage, bank, Business_Finance, british bankers association