8th April 2014

Postcode lending figures show banks are delivering finance across the country

Written by Richard Woolhouse, Chief Economist, BBA

This morning we have released the second quarterly instalment of postcode lending data for the period Q3 2013.  This shows the stock of lending (amounts outstanding) for mortgages, personal loans and SME lending by postcode sector across the country (GB).  There are 10,000 postcode sectors across the country – these normally consist of the first four or five digits or letters of a postcode.

This data has been improved significantly from last time and we now have coverage for 96% of lending by the major lenders to small and medium sized businesses and 99% of personal loans (mortgage data are published by the Council of Mortgage Lenders).

Given the way the data has been improved it is difficult to compare this with the initial data set released back in January.  Indeed, it will be hard to say much until we have more data over time as this reports just stocks of loans and overdrafts outstanding.  Whilst for mortgage data it is possible to contextualise the data to some extent, for SME lending it is very difficult to compare the data as there is very little data on business demographics available by postcode sector.  Therefore the fact that lending is low in a particular postcode sector could represent the fact that there are very few businesses in that sector, or that the businesses which do exist are in sectors with low capital intensity and hence do not have significant borrowing requirements.

Where we do have some more meaningful data is at the regional level and it is worthwhile just noting a few aspects of the overall lending landscape as this data is digested.

  • Whilst the aggregate stock of lending to SMEs has reduced by some 4% over the year to last September, new lending is growing rapidly by 11% more in Q3, than in Q3 2012.  Q3 alone saw £6.9bn of new finance facilities provided to SMEs.
  • At regional level, the value of new lending approved in Q3 was higher in most regions than in the same quarter a year earlier.  London, South West, West Midland and Wales all saw new lending more than 20% higher than in 2012 Q3, while North East and East Midlands were up more than 10%.
  • Acceptance rates remain very high for those applying for loans with 77% of smaller businesses and 90% of medium sized businesses successful in their loan applications in the second half of last year.
  • At the time of this data (Q3 2013) firms were growing their deposits such that deposits are higher than the stock of outstanding borrowing by £32.6bn, with smaller businesses deposits growing at 7% pa and medium sized businesses at 9%.
  • With other forms of finance such as leasing, invoice finance, crowd funding and equity finance increasingly available to SMEs and growing, the range of external finance is probably wider than at any other time in history.
  • And lender choice is wide in the personal loan market as well.  Banks directly provide only around 60 per cent of all consumer credit.

So in aggregate whilst the SME sector continues to slightly reduce its stock of outstanding bank lending this is occurring against a context of rapidly rising new lending, rising deposits and a more diverse financing system with alternative forms of finance increasingly available.  With the large firm sector now beginning to invest and credit availability and demand now more buoyant as we move down the size scale SMEs are increasingly likely to begin to invest, hire and grow and banks are well placed to help the achieve these goals.

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