Unsecured Loans to Business in the UK – Key Trends and Opportunities up to 2018

The lending to business industry is beginning to stabilize following the recession. The lending to business industry in the UK has recorded little signs of growth since 2011, but has somewhat stabilized since the financial crisis. Net lending to non-financial businesses declined by GBP109.5 billion from 2008 to 2009, while lending to Private Non-Financial Corporations (PNFCs) declined by just under 35% (in terms of annual change) between the start of both 2008 and 2010, which emphasizes the impact of the crisis.

The affordability of business loans has declined since 2009, when the Bank of England reduced interest rates to a record low of 0.5%. This has contributed to a sharp rise in repayments, as companies have been keen to pay off as much debt as possible before the rates rise − anticipated to be early 2015.

The government has made several attempts to reinvigorate business lending over the last couple of years, however, its projects have all missed their targets. The flagship Funding for Lending scheme declined short of its GBP80 billion target by GBP20 billion in 2012, while Project Merlin was GBP1.1 billion shy.

The rising of the emergency 0.5% bank rate is set to make attaining credit more expensive for banks and subsequently 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.

Commercial retail estate lending is the largest market within the lending to business industry and was one of the main drivers of the UK’s 2008 financial crisis. Lending declined by just over GBP6.0 billion (in terms of net lending flows) from the beginning of 2007 to the end of 2009, falling considerably more than any other market.

The industry is dominated by mainstream banks, with Royal Bank of Scotland, Lloyds, Barclay, HSBC and Santander controlling over 80% of the market. Regulations and high costs mean it is a difficult industry to enter; a situation that is unlikely to change in the immediate future.

Scope

GlobalData's 'Unsecured Loans to Business in the UK – Key Trends and Opportunities up to 2018' report provides market analysis, information and insights into the UK lending to business industry:

• It provides a breakdown of the different forms of lending to business 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

Key Highlights

The lending to business industry in the UK has recorded little signs of growth since 2011, but has somewhat stabilized since the financial crisis. The affordability of business loans has declined since 2009, when the Bank of England reduced interest rates to a record low of 0.5%. This has contributed to a sharp rise in repayments, as companies have been keen to pay off as much debt as possible before the rates rise − anticipated to be early 2015.

Reasons to buy

• Gain an understanding of the UK lending to business industry

Companies mentioned

Santander UK Plc, Royal Bank of Scotland Group Plc, HSBC Bank Plc, Barclays Plc, Lloyds Banking Group Plc, HSBC

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 15

3.2.3 Net lending 17

3.2.4 Lending to business by sector 26

3.3 Loans by type 29

3.3.1 Overdrafts 29

3.3.2 Syndicated lending 31

3.4 Market drivers 33

3.4.1 Interest rates 33

3.4.2 Cash deposits 36

3.5 Cost and Availability of Credit 38

3.6 Market Outlook 41

4 Economic Backdrop 42

4.1 Real GDP growth 42

4.2 Labor Market Conditions 43

4.3 Housing Market 45

4.4 Disposable Income 48

4.5 Interest Rates 49

5 Competitive Landscape 50

5.1 Market Shares 50

6 Porter’s Five Forces Analysis 51

6.1 Bargaining Power of Suppliers: Medium 51

6.2 Bargaining Power of Buyers: Low 52

6.3 Barriers to Entry: Medium to High 52

6.4 Intensity of Rivalry: Low to Medium 52

6.5 Threat of Substitution: Low to Medium 52

7 Regulation and Policy 53

7.1 Regulators 54

7.1.1 Prudential Regulation Authority (PRA) 54

7.1.2 Financial Conduct Authority (FCA) 54

7.1.3 Monetary Policy Committee (MPC) 54

7.1.4 Treasury Committee 54

7.1.5 Competition and Markets Authority (CMA) 54

7.2 Recent Changes 55

7.2.1 Funding for lending scheme 55

7.2.2 Quantitative easing 55

7.2.3 Project Merlin 56

7.2.4 British Business Bank Investment Program 56

7.2.5 Banking Reform Act 2013 57

7.2.6 RBS SME Independent Review 57

7.2.7 2014 Budget announcement 58

7.2.8 Queen’s speech 2014 58

7.2.9 Lending To Business – SWOT Analysis 59

7.3 Upcoming Regulations 59

7.3.1 Basel III 59

8 Deals 60

9 News 61

10 UK Retail Banks 63

10.1 Barclays PLC – Company Overview 63

10.1.1 Barclays PLC– profile 63

10.1.2 Barclays PLC – main competitors 63

10.1.3 Barclays PLC –board of directors 64

10.2 HSBC Bank PLC – Company Overview 65

10.2.1 HSBC Bank PLC – profile 65

10.2.2 HSBC Bank PLC – main competitors 65

10.2.3 HSBC Bank PLC –board of directors 66

10.3 Lloyds Banking Group PLC – Company Overview 67

10.3.1 Lloyds Banking Group PLC – profile 67

10.3.2 Lloyds Banking Group PLC – main competitors 67

10.3.3 Lloyds Banking Group PLC – board of directors 68

10.4 Santander UK PLC – Company Overview 68

10.5 Santander UK PLC – profile 68

10.5.1 Santander UK PLC – main competitors 69

10.5.2 Santander UK PLC – board of directors 69

10.6 The Royal Bank of Scotland Group – Company Overview 70

10.6.1 The Royal Bank of Scotland Group PLC – profile 70

10.6.2 The Royal Bank of Scotland Group PLC – main competitors 70

10.6.3 The Royal Bank of Scotland Group PLC – board of directors 71

11 Statistics 72

11.1 Review Period: 2009–2013 72

11.2 Forecast Period: 2014–2018 73

12 Appendix 74

12.1 Methodology 74

12.2 Contact GlobalData 74

12.3 About GlobalData 74

12.4 GlobalData’s Services 75

12.5 Disclaimer 76

List of Tables

Table 1: Lending to Business Definitions 8

Table 2: UK Annual New Term Lending to Small Businesses Growth Rates Forecast 23

Table 3: UK Annual New Term Lending to Medium-sized Businesses Growth Rates Forecast 24

Table 4: UK Annual New Term Lending to Large Businesses Growth Rates Forecast 25

Table 5: The UK Lending to Business Market–SWOT Analysis 59

Table 6: Barclays PLC, Key Facts 63

Table 7: Barclays PLC, Board of Directors 64

Table 8: HSBC Bank PLC, Key Facts 65

Table 9: HSBC Bank PLC, Board of Directors 66

Table 10: Lloyds Banking Group PLC, Key Facts 67

Table 11: Lloyds Banking Group PLC, Board of Directors 68

Table 12: Santander UK PLC, Key Facts 68

Table 13: Santander UK PLC, Board of Directors 69

Table 14: The Royal Bank of Scotland Group PLC, Key Facts 70

Table 15: The Royal Bank of Scotland PLC, Board of Directors 71

Table 16: The UK – Lending to Business Market (GBP Billion), 2009–2013 72

Table 17: The UK – Lending to Business Market (GBP Billion), 2014–2018 73

List of Figures

Figure 1: Make up of UK Private Sector Businesses (Volume of Employees/GBP Billion), 2013 11

Figure 2: UK’s Share of Enterprises in the Private Sector (%), 2013 12

Figure 3: UK SME Outstanding Loan Stock (GBP Million), 2011−2014 13

Figure 4: UK SME Outstanding Loan Stock, Annualized Growth Rates (%), 2007−2011 14

Figure 5: UK Outstanding Loans and Reverse Repos to Large Businesses From MFIs (GBP Million), 2011−2014 14

Figure 6: New Lending to Small Businesses (GBP Million), 2009−2013 15

Figure 7: UK New Lending to Small Businesses (GDP Million), 2008−2014 16

Figure 8: UK New Lending to Medium Businesses (GDP Million), 2011−2014 16

Figure 9: UK New lending to Large Business (GDP Million), 2011−2014 17

Figure 10: UK Net lending to UK business (GBP Billion), 2011–2014 18

Figure 11: UK Net Lending to UK Non-Financial Business (GBP Billion), 2004−2013 19

Figure 12: UK SME Gross Lending and Repayments Per Working Day (GDP Million), 2008−2009 19

Figure 13: UK Gross Lending and Repayments to SMEs (GBP Million), 2011−2014 20

Figure 14: UK Quarterly Gross Lending and Repayments to SMEs (GDP Billion), 2011−2014 20

Figure 15: UK Gross Lending and Repayments to Large Businesses (GBP Million), 2011−2014 21

Figure 16: UK Quarterly Gross Lending and Repayments to Large Businesses (GBP Billion), 2011−2014 22

Figure 17: UK Annual New Term Lending to Small Businesses Forecast 23

Figure 18: UK Annual New Term Lending to Medium-Sized Businesses Forecast 24

Figure 19: UK Annual New Term Lending to Large Businesses Forecast 25

Figure 20: UK Net Lending Flows to Business Sectors in the UK (GBP Billion), 2007−2009 26

Figure 21: UK Lending to Commercial Real Estate Small Businesses (GBP Million), 2011−2014 27

Figure 22: UK Lending to Commercial Real Estate – Medium Businesses (GBP Million), 2011−2014 28

Figure 23: UK Growth in The Stock of Lending to The Real Estate Sector by UK MFIs (%), 2000−2009 28

Figure 24: UK Value of Overdrafts Outstanding Small and Medium Businesses (GBP Million), 2011−2014 29

Figure 25: UK Changes in Value of Overdrafts Outstanding to Small and Medium Businesses (GBP Million), 2011−2014 30

Figure 26: UK Value of Overdrafts Outstanding, Large Businesses (GBP Million), 2011−2014 30

Figure 27: UK Changes in Value of Overdrafts Outstanding to Large Businesses (GBP Million), 2011−2014 31

Figure 28: UK Estimates of New Syndicated Lending Facilities Granted to UK Businesses (GBP Billion), 2009−2014 32

Figure 29: UK Average Lending to Business Interest Rate (%), 2004−2014 33

Figure 30: UK Bank of England Official Bank Rate (%), 2004−2014 34

Figure 31: UK CPI Inflation Index (%), 2008−2014 36

Figure 32: UK Cash Deposits Held by Small Businesses (GBP Million), 2011−2014 37

Figure 33: UK Cash Deposits Held by Medium Businesses (GBP Million), 2011−2014 37

Figure 34: UK Availability of Credit to Small Businesses (Percentage Points), 2009−2014 38

Figure 35: UK Availability of Credit to Medium Businesses (Percentage Points), 2009−2014 39

Figure 36: UK Availability of Credit to Large Businesses (Percentage Points), 2009−2014 40

Figure 37: UK Real GDP Growth (%), 2008–2018 42

Figure 38: UK Unemployment and Redundancy Rates (%), 2004–2012 43

Figure 39: UK Average Weekly Earnings (GBP), 2004–2013 44

Figure 40: UK Housing Construction Growth (%), 2004–2013 45

Figure 41: UK Household Disposable Income (GBP), 1997–2013 46

Figure 42: UK Average House Prices by Type of Buyer (GBP), 2004–2013 47

Figure 43: UK Annual House Price-to-Earnings Ratio (%), 2004–2013 47

Figure 44: UK Household Disposable Income (GBP), 1997–2013 48

Figure 45: UK Bank of England Rate (%), 2004–2014 49

Figure 46: UK Gross Lending to SMEs, Market Shares of The Five-Largest Business Lenders (%), 2013 50

Figure 47: UK Lending to Business Market Five Forces Analysis, 2014 51

Figure 48: UK Banking Regulatory Framework, 2014 53

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