The Bank of England’s new monthly lending report is becoming a useful addition to the stock of knowledge on bank lending. The data is all old news, so the interesting stuff is the Bank’s intelligence regarding the reasons for changes in the stocks and flows of lending, and in the indications of where the lending data is heading. This month there is both good and bad in the report.
We now have an explanation for the terrible July net lending figures to companies. Companies were raising debt and equity in capital markets and using it to pay back money owed by them. If you are a better credit risk than your bank, there is no reason to use it for financial intermediation. The chart shows how prevalent the fundraising was in June, explaining why companies paid money back to the banks in July.
And the banks have told the BoE that these companies have kept the loan facilities in place.
“Market intelligence suggests that companies have created this headroom so that, should investment opportunities arise in the future, they could respond quickly without having to negotiate new loan facilities.”
But there are also more worrying signs.
The banks are reporting very little new demand for loans from big companies and the Bank has found that credit conditions remain much more constrained for small- and medium-sized companies.
“Several of the major UK lenders reported that smaller companies faced tougher lending criteria and higher loan spreads than larger companies, because they are less well diversified and hence less able than larger companies to withstand adverse shocks”
So life remains horrible for small company Britain, with credit hard to find and costs still rising.
In the housing market, net lending by UK banks is rising steadily from a trough in the spring.
But total lending is falling because foreign lenders are busily exiting the UK market. The other interesting feature in the chart is that the remortgaging business is falling sharply because banks are no longer offering teaser rates to new customers in the way they did.
The effective interest rate is lower for existing mortgages than for new mortgages, a big change in the mortgage landscape. If this is a sign that the old ‘bait and switch’ days of banking are coming to a close, that would be really good news for a move back to traditional banking without millions of unnecessary transactions. But I’m not holding my breath.