Red tape and defaults hit bank lending
STIFLING regulations and a rising number of defaults are forcing banks to cut down on lending, a new report from Ernst & Young warns this morning.
Banks are being “forced on a diet”, according to the firm’s Marcel Van Loo, who said: “on the one hand they are being asked to hold more capital but on the other they are facing ongoing unresolved macro-economic instability”.
The result is increasingly conservative policies from banks both in the UK and elsewhere in Europe, the research shows.
Lenders appear concerned over facing an increasing number of defaults, resulting in greater losses. Regarding loans to services firms – Britain’s largest sector – over half of the surveyed banks expect the risk of default to increase.
“It is not just banks in the UK who are expecting defaults to rise, this concern about existing loans is consistent across Europe as the continued economic uncertainty impacts more and more businesses,” added Steven Lewis from Ernst and Young.
Yet a separate report, also released this morning, shows more upbeat figures for firms in the UK.
Insolvencies fell in January to the same level seen at the start of last year, data from Experian revealed – down from 0.11 per cent in December to 0.07 per cent last month.
The improvement was led by mid-sized businesses with 101 to 500 employees.