Let’s Get This Straight… Bank Business Lending Figures Are Not All Doom and Gloom

Posted on 06.01.2014, by Rob Warlow

The monthly business borrowing figures released by the Bank of England has once again fuelled the ‘banks aren’t lending’ debate but as I mentioned last month (Bank Lending to SMEs Is Falling But That’s Just One Side of the Story) delving deeper into the figures reveals a slightly different story.

The release of the November bank borrowing figures lead to media comments such as ‘bank lending tumbles’ and ‘slump in bank lending’. These headline grabbing quotes was on the back of Bank of England figures which showed that in the month of November alone the total amount of business lending (overdrafts and loans) fell by £4.7 billion.

However, the detail in the numbers doesn’t quite support such a doomsday situation and here’s why.

The monthly reduction figure quoted is the fall in ‘net lending’ – this is the total stock of all borrowing which is the sum of new lending drawn down in the monthly less monthly repayments.

What is happening is that businesses are repaying debt quicker than the banks are lending it back out.

Here are the figures (these numbers only include loans with overdrafts having been taken out in the stats by the Bank of England):

Month New Loans Repayment Net Lending
August 9.6 12.3 -2.7
Sept 13.5 14.5 -1.0
Oct 15.5 15.3 0.2
Nov 13.5 16.7 -3.1


We can see that in August the banks lent out £9.6b and whilst this increased to £15.5b of new lending in October, the amount of £13.5b in November still compares favourably.

However, new lending is being offset by higher repayments in the month so resulting in a reduction in the total stock of loans. In November new lending of £13.5b was offset by repayments of £16.7b resulting in a net reduction of £3.1b.

These figures relate to businesses of all sizes but the Bank of England also issues figures with the larger businesses stripped out leaving just SME borrowing and these reveal a slightly different picture.

Month New Loans Repayment Net Lending
August 3 3.6 -0.6
Sept 3.3 3.8 -0.6
Oct 4.1 4.4 -0.2
Nov 4 3.7 0.2


We can see that overall there has been a steady increase in new loans to small businesses. The British Bankers’ Association has quickly pointed out that the new lending to SMEs (totalling £4 billion in November) was 38% higher than the £2.9b seen in the same month in 2012.

Nearly 40% increase! I don’t see this figure being mentioned too much in the media!!

And there is further good news; for the first time in many months, November actually saw a net increase in lending to SMEs of £200m i.e. more was lent out than was paid back.

So, both from a combined position, and for SME lending on its own, the underlying problem is that businesses are paying off debt at a quicker rate than they are taking on new loans.

At a gross level, bank lending does appear to be increasing.

We can argue that banks should be making an effort to lend more in order to get to a positive position each month but should we be too concerned that businesses are paying down debt? We saw businesses gorging on easily available credit during the boom days and quite sensibly they are now focused on paying debt down.

I have talked before about the lack of appetite amongst businesses to borrow and this has been highlighted in a number of surveys. The most recent of these is the quarterly SME Finance Monitor report. In its latest review to Quarter 3 of 2013, they reported that 78% of SMEs classified themselves as ‘happy non-seekers of finance’.

Yes, nearly 80% of those small businesses surveyed said they have had no interest in borrowing over the last 12 months! No wondering that debt repayment is exceeding the total of new loans disbursed.

So, let’s not listen too much to the negative press headlines. Undoubtedly there are some businesses who feel aggrieved at their bank saying no; yes, in some cases banks could be less risk averse; but the bottom line is that there is evidence emerging that lending is on the way up… for those business who actually want to borrow that is.

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