Unsecured Loans to Business in the UK Key Trends … Unsecured Loans to Business in the UK– Key...

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Unsecured Loans to Business in

the UK– Key Trends and

Opportunities to 2019

Market Intelligence Report

Reference code: FS0137MR

Published: July 2015

Report Price: US$$2,795(Single Copy)

Report Price: US$$2,795

Unsecured Loans to Business in the UK– Key Trends and Opportunities to 2019

© Timetric. This product is licensed and is not to be photocopied Published: July 2015

Synopsis

The main theme throughout the review period was new lending recovering and growing substantially in the latter

years - 13.4% thought 2014 - but the outstanding stock of business lending continued to fall due even sharper

growth in repayments, which reached 15.3% in 2014 from 2013.

Summary

Net lending to small and medium-sized businesses was positive during four of the six months to March 2015,

increasing by 1% from December 2014, while net lending to large businesses increased almost by 2% during the

three months to March 2015. Gross lending to all businesses has registered growth since the start of 2013,

mainly due to an increase in the availability of credit. Outstanding lending declined during 2014, despite

increased gross lending, due to a substantial growth in repayments: 15%, 13% and 22% for small, medium-sized

and large business respectively.

Interest rates remain at a historic low, and have been falling consistently since the Bank of England cut the

central bank rate to 0.5% in 2009. The Bank for England’s quarterly Credit Conditions survey found that lending

rates to small businesses remained broadly unchanged during the first quarter of 2015, while respondents

indicated that rates had fallen significantly for medium-sized and large businesses.

The government has made several attempts to reinvigorate business lending over the last couple of years,

however its projects have failed to have the desired effect. The flagship Funding for Lending scheme (FLS)

began slowly and fell short of its initial GBP80 billion target by GBP20 billion in 2012. However, improvements

have been made seen since 2014, and a substantial increase in the money lent through the FLS directly led to

both outstanding stock for small and medium enterprises (SMEs) and new term lending to large business

increasing. Project Merlin – the Government’s agreement with the ‘big four’ banks to increase lending to small

businesses – fell GBP1.1 billion shy of its initial target.

The rise of the emergency 0.5% bank rate is set to make access to credit more expensive for banks, and

subsequently, for businesses. With banks already wary of lending to smaller businesses, this may result in a

decline in loan approvals, while businesses themselves are likely to be deterred by the prospect of more

expensive loans. The Office for Budget Responsibility (OBR) altered its forecast in March 2015 and anticipates

the rise to occur in mid-2016, as opposed to later this year. This gives banks and businesses extra time to

prepare for the additional costs while the economy grows.

The industry is dominated by mainstream banks, with the ‘big four’ of Royal Bank of Scotland, Lloyds, Barclays

and HSBC controlling over 80% of the market. Regulations and high costs make it a difficult industry to enter.

Therefore, any real competition is sparse, although peer-to-peer lending has risen sharply over the last few years

– it almost doubled in 2013 – after offering smaller businesses a viable alternative if bank loans are unavailable

or too expensive.




Scope

• This report provides market analysis, information and insights into the UK business lending industry.

• It provides a breakdown of the types of business loans in the UK.

• It analyses drivers and the outlook for the market.

• It provides information on the main banks in the UK market.

• It covers news and regulatory developments."

Reasons to Buy

• Gain an understanding of the UK business lending industry

• Access monthly and annual statistics on every aspect of the market, both in written form and in graphs and

tables.

• Read analysis of the relevant market statistics, detailing what has been happening in the lending to business

market for both SMEs and large businesses, why it has been happening, and what to expect in the coming years.

• Read about the economic factors impacting the market.

• Read about how individual banks and building societies are affecting the market, in terms of market share and

innovation.

Key Highlights

The stock of lending to businesses suffered greatly during the financial crash and has been in constant decline

since. Strong growth in repayments, due to companies' increased fear of debt has been the main factor, but

improving economic conditions make growth likely over the forecast period.




1 Market Analysis

1.1 Market Background

There were XX million private sector businesses in the UK in 2014, over XX% of which were small

businesses (defined as having 0−49 employees), according to UK government statistics. This is an

increase of XXX from 2014…..

Figure 1: The UK – Make up of Private Sector Businesses (Volume of Employees/GBP Billion), 2014

Source: House of Commons Library, Timetric analysis © Timetric




1.2 Market Size

1.2.1 Stock of lending

The total stock of business lending to non-financial businesses from Monetary Financial Institutions (MFIs)

was GBPXXX billion in 2014, a XX% decrease from 2013, a smaller decline than the reductions of XX%

and XX% recorded during 2011 and 2012…..

Figure 2: UK Lending to Non-Financial Businesses – Outstanding Balances (GBP Million),

2011−2015

Source: British Banking Association, Timetric analysis © Timetric




2 UK Retail Banks

2.1 Barclays Plc – Company Overview

Barclays Plc (Barclays) is a financial services provider, based in the UK. The company provides a range of

personal and corporate banking products and services including bank accounts, credit cards, savings

accounts, loans…

2.1.1 Barclays Plc – profile

The company’s key facts are listed below:

Table 1: BarclaysPlc, Key Facts

Corporate

Address:

XXX Ticker Symbol, Stock

Exchange:

XXX

Telephone: XXX No. of Employees: XXX

URL: XXX Financial Year End: XXX

Locations: XXX

Source: Annual report, company website, primary and secondary research /© Timetric

2.1.2 Barclays Plc – board of directors

Table 2: Barclays Plc, Board of Directors

Name Job Title Board Level Since Age

XXX XXX XXX XXX XXX

XXX XXX XXX XXX XXX

XXX XXX XXX XXX XXX

XXX XXX XXX XXX XXX

XXX XXX XXX XXX XXX

XXX XXX XXX XXX XXX

XXX XXX XXX XXX XXX

XXX XXX XXX XXX XXX

XXX XXX XXX XXX XXX

XXX XXX XXX XXX XXX

XXX XXX XXX XXX XXX

XXX XXX XXX XXX XXX

XXX XXX XXX XXX XXX

XXX XXX XXX XXX XXX

XXX XXX XXX XXX XXX

Source: Annual report, company website, primary and secondary research © Timetric




3 Statistics

3.1 Review Period: 2009–2013

Table 3: The UK – Lending to Business Market (GBP Billion), 2009–2013

2010 2011 2012 2013 2014

Lending to small business – balances outstanding XXX XXX XXX XXX XXX

Lending to medium business – balances outstanding XXX XXX XXX XXX XXX

Lending to large business – balances outstanding XXX XXX XXX XXX XXX

Gross lending to small business XXX XXX XXX XXX XXX

Gross lending to medium business XXX XXX XXX XXX XXX

Gross lending to large business XXX XXX XXX XXX XXX

Gross repayments – SMEs XXX XXX XXX XXX XXX

Gross repayments –large business XXX XXX XXX XXX XXX

Overdrafts outstanding value – small business XXX XXX XXX XXX XXX

Overdrafts outstanding value – medium business XXX XXX XXX XXX XXX

Overdrafts outstanding value – large business XXX XXX XXX XXX XXX

Outstanding value of loans to commercial real estate – small business XXX XXX XXX XXX XXX

Outstanding value of loans to commercial real estate – medium business XXX XXX XXX XXX XXX

New syndicated lending facilities granted to UK business XXX XXX XXX XXX XXX

Bank rate XXX XXX XXX XXX XXX

Source: Bank of England, British Banking Association, Timetric analysis © Timetric




Methodology

All Timetric retail banking reports are created by following a comprehensive, four-stage methodology. This

includes market study, research, analysis and quality control.

1) Market Study

A. Standardization

Definitions are specified using recognized industry classifications. The same definition is

used for every country.

B. Internal audit

Review of in-house databases to gather existing data:

Historic market databases and reports

Company database

C. Trend monitoring

Review of the latest banking institutions and industry trends

2) Research

A. Sources

Collection of the latest market-specific data from a wide variety of industry sources:

Bank of England

Office of National Statistics

Industry associations

Company filings and annual reports

International organizations

Banking regulatory agencies (FCA and PRA)

B. Expert opinion

Collation of opinion taken from leading banking industry experts

Analysis of third-party opinion and forecasts:

Broker reports

Media

Official government sources

C. Data consolidation and verification

Consolidation of data and opinion to create historical datasets

Creation of models to benchmark data across sectors and regions




3) Analysis

A. Market forecasts

Feeding forecast data into market models:

Macroeconomic indicators

Industry-specific drivers

Analysis of retail banking industry database to identify trends:

Latest banking and saving trends

Key drivers of the banking industry and retail saving

B. Report writing

Analysis of market data

Discussion of company and industry trends and issues

Review of financial deals and banking and saving trends

4) Quality Control

A. Templates

Detailed process manuals

Standardized report templates and accompanying style guides

Complex forecasting tools to ensure that forecast methodologies are consistently applied

Quality-control checklists

B. Quality-control process

Peer review

Senior-level QC

Random spot checks on data integrity

Benchmark checks across databases

Market data cross-checked for consistency with accumulated data from:

Company filings

Government sources

Related Reports

Mortgage Lending in the UK - Key Trends and Opportunities to 2019

Individual Savings Accounts in the UK - Key Trends and Opportunities to 2018

Mobile Payments: Emerging Trends and Future Outlook




TABLE OF CONTENTS

1 Executive Summary ........................................................................................................ 2

2 Introduction ..................................................................................................................... 8

2.1 What is this Report About? .......................................................................................................................... 8

2.2 Definitions .................................................................................................................................................... 8

2.3 Methodology ................................................................................................................................................. 9

3 Market Analysis ............................................................................................................. 11

3.1 Market Background .................................................................................................................................... 11

3.2 Market Size ................................................................................................................................................ 13

3.2.1 Stock of lending ................................................................................................................................ 13

3.2.2 New term lending .............................................................................................................................. 16

3.2.3 Net lending ........................................................................................................................................ 20

3.3 Write-Offs ................................................................................................................................................... 24

3.4 Loans by Type ............................................................................................................................................ 25

3.4.1 Lending to business by sector .......................................................................................................... 25

3.4.2 Type of finance ................................................................................................................................. 28

3.4.3 Overdrafts ......................................................................................................................................... 29

3.4.4 Syndicated lending ............................................................................................................................ 31

3.4.5 Peer-to-peer lending ......................................................................................................................... 32

3.5 Market Drivers ............................................................................................................................................ 34

3.5.1 Funding for Lending Scheme ............................................................................................................ 34

3.5.2 Funding for Lending Scheme by bank .............................................................................................. 35

3.5.3 Interest rates ..................................................................................................................................... 38

3.5.4 Cash deposits ................................................................................................................................... 40

3.5.5 Cost and availability of credit ............................................................................................................ 42

3.5.6 Market innovation .............................................................................................................................. 44

3.6 Market Outlook ........................................................................................................................................... 45

3.6.1 New term lending forecasts .............................................................................................................. 46

4 Economic Backdrop ..................................................................................................... 50

4.1 Real GDP growth ....................................................................................................................................... 50

4.2 Labor Market Conditions ............................................................................................................................ 51

4.3 Central Bank Rate ...................................................................................................................................... 52

5 Competitive Landscape ................................................................................................ 53

5.1 Market Shares ............................................................................................................................................ 53

6 Regulation and Policy ................................................................................................... 54

6.1 Regulators .................................................................................................................................................. 55

6.1.1 Prudential Regulation Authority (PRA) ............................................................................................. 55

6.1.2 Financial Conduct Authority (FCA) ................................................................................................... 55

6.1.3 Monetary Policy Committee (MPC) .................................................................................................. 55

6.1.4 Treasury Committee ......................................................................................................................... 55

6.1.5 Competition and Markets Authority (CMA) ....................................................................................... 55




6.2 Recent Changes ........................................................................................................................................ 56

6.2.1 Funding for lending scheme ............................................................................................................. 56

6.2.2 Project Merlin .................................................................................................................................... 56

6.2.3 Quantitative easing ........................................................................................................................... 56

6.2.4 Reserve requirement ........................................................................................................................ 57

6.2.5 British Business Bank Investment Program ..................................................................................... 57

6.2.6 Banking Reform Act 2013 ................................................................................................................. 57

6.2.7 RBS SME Independent Review ........................................................................................................ 57

6.2.8 The Small Business, Enterprise and Employment Bill 2014............................................................. 58

6.3 Upcoming Regulations ............................................................................................................................... 59

6.3.1 Basel III ............................................................................................................................................. 59

7 Deals .............................................................................................................................. 60

8 News ............................................................................................................................... 61

9 UK Retail Banks ............................................................................................................ 62

9.1 Barclays Plc – Company Overview ............................................................................................................ 62

9.1.1 Barclays Plc – profile ........................................................................................................................ 62

9.1.2 Barclays Plc – main competitors ....................................................................................................... 62

9.1.3 Barclays Plc – board of directors ...................................................................................................... 62

9.2 HSBC Bank Plc – Company Overview ...................................................................................................... 63

9.2.1 HSBC Bank Plc – profile ................................................................................................................... 63

9.2.2 HSBC Bank Plc – main competitors ................................................................................................. 63

9.2.3 HSBC Bank Plc – board of directors ................................................................................................. 63

9.3 Lloyds Banking Group Plc – Company Overview ...................................................................................... 64

9.3.1 Lloyds Banking Group Plc – profile ................................................................................................... 64

9.3.2 Lloyds Banking Group Plc – main competitors ................................................................................. 64

9.3.3 Lloyds Banking Group Plc – board of directors ................................................................................ 64

9.4 Santander UK Plc – Company Overview ................................................................................................... 65

9.4.1 Santander UK Plc – profile ............................................................................................................... 65

9.4.2 Santander UK Plc – main competitors .............................................................................................. 65

9.4.3 Santander UK Plc – board of directors ............................................................................................. 65

9.5 The Royal Bank of Scotland Group – Company Overview ........................................................................ 66

9.5.1 The Royal Bank of Scotland Group Plc – profile .............................................................................. 66

9.5.2 The Royal Bank of Scotland Group Plc – main competitors............................................................. 66

9.5.3 The Royal Bank of Scotland Group Plc – board of directors ............................................................ 66

10 Statistics ........................................................................................................................ 67

10.1 Review Period: 2009–2013 ........................................................................................................................ 67

10.1 Forecast Period: 2014–2018 ...................................................................................................................... 67

11 Appendix ........................................................................................................................ 68

11.1 Methodology ............................................................................................................................................... 68

11.2 Contact Timetric ......................................................................................................................................... 68

11.3 About Timetric ............................................................................................................................................ 68

11.4 Timetric’s Services ..................................................................................................................................... 69




11.5 Disclaimer .................................................................................................................................................. 70




LIST OF FIGURES

Figure 1: The UK – Make up of Private Sector Businesses (Volume of Employees/GBP Billion), 2014......................................................... 11 Figure 2: The UK – Share of Enterprises in the Private Sector (%), 2014 ..................................................................................................... 12 Figure 3: UK Lending to Non-Financial Businesses – Outstanding Balances (GBP Million), 2011−2015 ...................................................... 13 Figure 4: UK Lending to Large Businesses – Outstanding Balances (GBP Million), 2011−2015 ................................................................... 14 Figure 5: The UK – SME Outstanding Loan Stock (GBP Million), 2011−2015 ............................................................................................. 14 Figure 6: The UK – SME Outstanding Loan Stock, Annualized Growth Rates (%), 2007−2014 .................................................................... 15 Figure 7: The UK – Total New Lending to Businesses (GBP Million), 2011−2015 ........................................................................................ 16 Figure 8: The UK – New Lending to Large Businesses (GBP Million), 2011−2015 ....................................................................................... 17 Figure 9: The UK – New Lending to SMEs (GDP Million), 2008−2014 .......................................................................................................... 18 Figure 10: The UK – New Lending to Small and Medium Businesses (GDP Million), 2008−2014 ................................................................. 18 Figure 11: The UK – New Lending to Large Businesses (GDP Million), 2011−2015 ..................................................................................... 19 Figure 12: The UK – Net Lending to UK Business (GBP Million), 2011–2015 ............................................................................................... 20 Figure 13: The UK – Net Lending to UK Businesses (GBP Million), 2011–2015 ........................................................................................... 21 Figure 14: The UK – Net Lending to UK Non-Financial Businesses (GBP Billion), 2004−2013 ..................................................................... 21 Figure 15: The UK – SME Gross Lending and Repayments per Working Day (GDP Million), 2008−2009 .................................................... 22 Figure 16: The UK – Gross Lending and Repayments to SMEs (GBP Million), 2011−2015 .......................................................................... 22 Figure 17: The UK – Gross Lending and Repayments to Large Businesses (GBP Million), 2011−2015 ....................................................... 23 Figure 18: The UK – Write-Offs on MFI Lending to PNFCs, Quarterly (GBP Million), 2007–2015 ................................................................. 24 Figure 19: The UK – Write-Offs- Annual Growth Rate for Same Quarter of Previous Year (%), 2007–2015 ................................................. 24 Figure 20: The UK – Percentage Changes in Stock of Lending (%), 2010−2015 .......................................................................................... 25 Figure 21: The UK – Gross Lending to Commercial Real Estate (GBP Million), 2011−2015 ......................................................................... 26 Figure 22: The UK – Stock of Commercial Real Estate Lending (GBP Million), 2011−2015 .......................................................................... 26 Figure 23: The UK – Growth in The Stock of Lending to The Real Estate Sector by UK MFIs (%), 2000−2009 ............................................ 27 Figure 24: The UK – Net Finance Raised by UK Business (GBP Million), 2007–2015 .................................................................................. 28 Figure 25: The UK – Value of Overdrafts Outstanding Small, Medium and Large Businesses (GBP Million), 2011−2015............................. 29 Figure 26: The UK – Changes in the Value of Overdrafts Outstanding to Small and Medium Businesses (GBP Million), 2011−2014 ........... 30 Figure 27: The UK – Value of Overdrafts Outstanding to Large Businesses (GBP Million), 2011−2015 ........................................................ 30 Figure 28: The UK – Estimates of New Syndicated Lending Facilities Granted to UK Businesses (GBP Billion), 2009−2014 ....................... 31 Figure 29: The UK – Peer-to-Peer Lending by Company (GBP Million), 2014 .............................................................................................. 32 Figure 30: The UK – Peer-to-Peer Quarterly New Lending (GBP Million), 2014−2015 .................................................................................. 33 Figure 31: The UK – Peer-to-Peer Quarterly Cumulative Lending, (GBP Million), 2014−2015 ...................................................................... 33 Figure 32: The UK – Total Stock of FLS Lending (GBP Million), 2014 .......................................................................................................... 34 Figure 33: The UK – Net Flow of Total FLS Lending (GBP Million), 2014–2015 ........................................................................................... 34 Figure 34: The UK – Stock of Biggest FLS Business Lenders (GBP Million), 2014 ....................................................................................... 35 Figure 35: The UK – Breakdown of Lloyds’ FLS Funds (GBP Million), 2014 ................................................................................................. 35 Figure 36: The UK – Breakdown of Nationwide’s FLS Funds (GBP Million), 2014 ........................................................................................ 36 Figure 37: The UK – Breakdown of Santander’s FLS Funds (GBP Million), 2014 ......................................................................................... 36 Figure 38: The UK – Breakdown of RBS’s FLS Funds (GBP Million), 2014 .................................................................................................. 37 Figure 39: The UK – Net Percentage Balances on Interest Rate Reported Changes (%), 2011−2015 .......................................................... 38 Figure 40: The UK – Average Lending to SME Interest Rate (%), 2011−2015 .............................................................................................. 38 Figure 41: The UK – Bank of England Official Bank Rate (%), 2004−2015 ................................................................................................... 39 Figure 42: The UK – CPI Inflation Index (%), 2010−2015 ............................................................................................................................. 40 Figure 43: The UK – Cash Deposits Held by SMEs (GBP Million), 2011−2015............................................................................................. 41 Figure 44: The UK – Availability of Credit: Past Three Months (Percentage Points), 2009−2015 .................................................................. 42 Figure 45: The UK – Availability of Credit: Next Three Months (Percentage Points), 2009−2015 .................................................................. 42 Figure 46: The UK – Demand for Credit: Past Three Months (Percentage Points), 2009−2015 .................................................................... 43 Figure 47: The UK – Demand for Credit: Next Three Months (Percentage Points), 2009−2015 .................................................................... 44 Figure 48: The UK – Annual New Term Lending to Businesses Forecast, 2015–2019 ................................................................................. 46 Figure 49: The UK – Annual New Term Lending to SMEs Forecast, 2015–2019 .......................................................................................... 47 Figure 50: The UK – Annual New Term Lending to Large Businesses Forecast, 2015–2019 ....................................................................... 48 Figure 51: The UK – Total Stock of Business Lending Forecast, 2015–2019................................................................................................ 49 Figure 52: The UK – Real GDP Growth (%), 2008–2014 .............................................................................................................................. 50 Figure 53: The UK – Unemployment and Redundancy Rates (%), 2004–2014 ............................................................................................. 51 Figure 54: The UK – Average Weekly Earnings (GBP), 2004–2013 ............................................................................................................. 51 Figure 55: The UK – Bank of England Rate (%), 2004–2015 ........................................................................................................................ 52 Figure 56: The UK – Volume Shares of Business Loans in England and Wales, 2013 ................................................................................. 53 Figure 57: The UK – Banking Regulatory Framework, 2014 ......................................................................................................................... 54




LIST OF TABLES

Table 1: Lending to Business Definitions ........................................................................................................................................................ 8 Table 2: The UK – Annual New Term Lending to Business (Growth Rates Forecast), 2015–2019 ............................................................... 46 Table 3: The UK – Annual New Term Lending to SMEs (Growth Rates Forecast), 2015–2019 .................................................................... 47 Table 4: The UK – Annual New Term Lending to Large Businesses (Growth Rates Forecast), 2015–2019 .................................................. 48 Table 5: The UK –Total Stock of Business Lending Forecast, 2015–2019 .................................................................................................... 49 Table 5: Barclays Plc, Key Facts .................................................................................................................................................................. 62 Table 6: Barclays Plc, Board of Directors ..................................................................................................................................................... 62 Table 7: HSBC Bank Plc, Key Facts ............................................................................................................................................................. 63 Table 8: HSBC Bank Plc, Board of Directors ................................................................................................................................................ 63 Table 9: Lloyds Banking Group Plc, Key Facts ............................................................................................................................................. 64 Table 10: Lloyds Banking Group Plc, Board of Directors .............................................................................................................................. 64 Table 11: Santander UK Plc, Key Facts ....................................................................................................................................................... 65 Table 12: Santander UK Plc, Board of Directors ........................................................................................................................................... 65 Table 13: The Royal Bank of Scotland Group Plc, Key Facts ....................................................................................................................... 66 Table 14: The Royal Bank of Scotland Plc, Board of Directors ..................................................................................................................... 66 Table 15: The UK – Lending to Business Market (GBP Billion), 2009–2013 ................................................................................................. 67 Table 16: The UK – Lending to Business Market (GBP Billion), 2014–2018 ................................................................................................. 67

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