By Daniel Hunter
The value of loans to businesses in the UK has slumped by 13% since the collapse of Lehman Brothers, the second fastest fall among the G8, according to UHY, the international accounting and consultancy network.
Outstanding loans to British businesses now stand at US$673 billion, down from US$775 billion in December 2008.
The UK ranks 18th out of the 22 countries surveyed in terms of the fastest growth rate of loans to businesses. In contrast, all of the BRIC nations have increased their lending to businesses by double digits since the collapse of Lehman Brothers. Of the major developed economies, only the U.S. has seen a faster fall in business loans.
The research shows that the BRIC nations have, on average, increased lending to businesses by 62% since December 2008 compared to banks G8 nations, which have, on average decreased funding to businesses by 4% over the same period.
UHY professionals studied Central Bank data on outstanding loans to businesses in 22 countries across its international network, including the G8, as well as key emerging economies, including the BRIC nations (Brazil, Russia, India and China).
According to UHY, the UK government has seen little success in its attempts to boost lending to businesses post-Lehman Brothers as banks looked to repair their balance sheets by reducing their loan books. In many countries, the reluctance of banks to lend to businesses has been identified as an important factor inhibiting economic growth.
The country with the fastest increase in loans to businesses is China, one of the so-called BRIC nations, where the amount of debt held by businesses increased by 65% since the onset of the credit crunch. Chinese banks have approximately US$6.9 trillion in outstanding loans with businesses, compared to US$4.2 trillion in December 2008.
The country which has seen the largest reduction in the value of loans to businesses is Ireland. The value of outstanding loans to businesses has collapsed by 42% since December 2008 from around US$224 billion to US$129 billion.
The research reveals, however, that some EU countries — Italy and France, for example – actually increased the value of loans to businesses, despite many of their banks being financially impaired by the sovereign debt crisis in the Eurozone.
“Lending to businesses has become one of the most hotly debated issues during the financial crisis. The risk is that businesses — particularly SMEs — are being starved of competitively priced funding as a result of the shrinkage of the banking sector,” Ladislav Hornan, Managing Partner of UHY Hacker Young, the UK member of UHY commented.
“Among the G8, only U.S. banks have shrunk their loan books faster since the onset of the credit crunch. The concern for UK businesses is that with banks reluctant to lend, they are unable to invest and be internationally competitive.
“The four BRIC nations have seen their lending to businesses grow at the fastest rate. While part of that growth is driven by higher inflation, it still shows the gulf in performance between the UK and faster growing economies.”
A recent report commission by UK banks — called the SME Finance Monitor -revealed that 40 per cent of businesses which applied for a loan for the first time were turned down. Less than a third — around 30 per cent — were ‘offered what they wanted and took it’.
“Lending to businesses, particularly small businesses, is a key barometer of economic prosperity,” Ladislav Hornan said.
“Small businesses are the engine of economic growth, but starved of fuel in the form of credit it can be difficult for them to move up a gear, expand and create jobs. In an increasingly globalised world, if a small business cannot expand to fulfill an order, that order can be lost to a better financed overseas competitor.
“Small businesses are hugely reliant on bank financing as, unlike larger corporates, they are usually not able to raise money through bonds or share issues.”
The research shows that, many EU countries, including Romania, Czech Republic, Slovak Republic, the Netherlands, Italy, France and Germany have posted a significant increase in lending to businesses, despite the impact of the Eurozone crisis on the liquidity of European banks.
“The pace of deleveraging among many European banks — in comparison with American, British and Irish banks — has been painfully slow. This probably explains why lending to businesses in countries like Italy and Spain has increased, albeit not in real terms,” Hornan added.
“Four years after the banking crisis and lending to UK SMEs is still falling. The challenge for the UK Government is to show that it can play a major role in reversing this trend.”
The research shows that, among the G8, Russia has seem the fastest increase in lending to businesses.
“The potential for growth of business credit in Russia remains high,” Nikolay Litvinov, partner of UHY Yans-Audit LLC in Russia, a member of UHY, commented.
“Lending to businesses displayed improvement even during the global financial crisis. It is related, in many respects, to the financial stability achieved by cooperation between the state and the banking sector, as well as stable growth of Russia’s economy. Like other BRIC countries, Russia hasn’t got any preconditions for reduction in the scope of business credit.
“The recent commodities boom has insulated Russian from the full force of the global financial crisis. The Russian economy, though suffering a financial crisis in 2008/09, has recovered quite strongly since then. This has fuelled appetite for debt among Russian businesses and enabled well-capitalised Russian banks to meet that demand.”
The research also reveals that lending to businesses in Ireland has declined by 42% since December 2008, from around US$224 billion to US$129 billion — the fastest rate among the 22 countries surveyed.
“The Irish government has pumped more than €60 billion into the banking system over the last four years,” Alan Farrelly, partner of UHY Farrelly Dawe White Limited in Ireland, a member firm of UHY commented.
“The purpose of this money was to save the banks from collapse, but now that the immediate crisis has been averted, the Government needs to ensure that more of this money finds its way into the economy.”
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