THE AVAILABILITY of funding for businesses is set to fall by the largest level since the global financial crisis, according to new data from the Bank of England (BoE).
According to the Bank of England’s latest Credit Conditions Survey, although corporate lending remained steady in the third quarter of this year, it is expected to tighten by the first quarter of 2020, in what would be the biggest corporate credit crunch since the first quarter of 2008.
Analysts have speculated that the fall in business funding is due to a change in risk appetite amongst lenders, as the economic outlook is expected to remain unchanged over the coming months.
Furthermore, Colin Jackson, an analyst with Goodbody, pointed out that the decision to tighten the supply of credit also reflects lenders’ view on defaults in the sector.
“It is unsurprising to see a reduction in M&A activity and a delay in capital investment as the reasons underpinning a weaker demand backdrop,” said Jackson. “And while these are expected to remain subdued in the fourth quarter of 2019, we may see some pent-up demand released in the event of some certainty on Brexit. Overall, the tightening of credit to the corporate sector has grabbed media headlines, with lenders understandably cautious on corporate lending against the highly uncertain backdrop.”
The Credit Conditions survey also reported that overall demand for unsecured lending dropped slightly in the third quarter of the year, driven largely by a declining demand for credit card lending. While credit card lending figures are expected to remain the same during the next quarter, demand for other unsecured lending was expected to decrease slightly before the end of the year.
“Default rates have increased this quarter for both credit cards and unsecured lending, with defaults expected to increase slightly in the quarter ahead,” Jackson added. “Demand for unsecured credit weakened slightly in the quarter, though is expected to hold up in the quarter ahead.
“Overall, the data show that lenders are expected to continue to move down the risk curve in the fourth quarter of 2019, with lenders more generally de-emphasising unsecured lending.”
The survey also looked at residential mortgage figures, finding that mortgage was unchanged in the third quarter, and is expected to grow slightly in the fourth quarter. The data showed that lending criteria has tightened, while credit quality has increased and defaults remain low.