Credit easing is welcome relief for UK plc
Posted by admin in on Tue, 06/04/2010 - 18:22
It was published on April Fool’s day and the results of the Bank of England’s Credit Conditions Survey would certainly have put a smile on the faces of finance directors around the UK – but a joke it most certainly was not.
The survey shows that the appetite for lending is increasing and Britain’s banks and building societies are set to make credit more easily available to both businesses and homeowners alike as the economic outlook improves, according to the Bank of England report.
Against a backdrop of complaints from the business community that banks have been pulling back on lending, leaving them hamstrung during the downturn, the survey shows that corporate credit availability increased slightly in the first three months of 2009, despite an anticipated fall.
The easing of the credit markets, and bank funding in particular, will be a huge relief to many businesses. Anecdotal evidence from the business community certainly suggests that getting the green light on bank loans has been no mean feat over the last year.
The banking community, of course, would refute that. Indeed one senior executive at a major high street bank effectively told me that that tightening of credit markets was little more than a myth, propagated by media hype. By talking down the availability of finance, businesses – and SMEs in particular, he said were put off even applying for loans.
There may be an element of truth to his protestations, but let’s face it, it’s not been nice out there, whichever way you look at it.
No doubt a general improvement of the economic outlook has helped boost the confidence (and consequent lending appetite) of the banks. The unexpected fall during the first three months of 2010 of medium and large company defaults on loans, and the fact that manufacturing activity in the UK reached its highest level in more than 15 years in March, according to the Purchasing Managers Index from the CIPS, will have helped the general feeling of confidence, not to mention rally the FTSE100.
But if we are emerging from this mother of recessions, will any of the unwritten rules surrounding bank finance have changed? Loan applications may have been under a huge amount of scrutiny over the past 12 months or so. But as the economy continues to improve, it’s unlikely that many loans will be refused without good justification by banks. The banks are in the business of making money, and continue to make money from credit they will.
Poorly run business with flawed business plans who stand little chance of repaying the money they’re looking to borrow may as well forget it – but then, hasn’t that pretty much always been the case?
The Bottom Line:If Mr Cable has his way...
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