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Commercial Banking and Finance - UK - March 2016

“As banks continue to retrench from regions or sectors where they are unable to meet specific demand and re-valuate their operational strategies, they will need to rely on their personnel more and more to deliver evolving products and services.”
– Lewis Cone, B2B Analyst

This report will explore the following key issues regarding commercial banking and finance in the UK:

  • What are the key determinants driving commercial banking and finance?
  • Was the market affected by the financial crisis? Have there been any structural changes as a consequence?
  • Has regulation restricted industry development?
  • Can challenger banks make a significant impact? Or is the market still dominated by the ‘big four’ banks?
  • What does the future hold for commercial banking and finance?

This report analyses the UK commercial banking market, with a focus on the mid-market and corporate banking sectors. It covers services to non-financial private sector businesses.

The market segmentation splits medium and large businesses. For the purposes of this report, a medium-sized business is defined as a nonfinancial, private sector business with an annual turnover of between £1 million and £25 million. Large businesses are defined as those with turnover in excess of £25 million. This is in line with the definition used by the British Bankers’ Association (BBA). The term ‘corporate banking’ is used to refer to services provided to large businesses.

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Table of contents

  1. Executive Summary

      • Market size
        • Figure 1: UK MFIs Sterling Deposits from UK Resident Businesses, by Quarter End, 2014-15, (£ Million Outstanding of Deposit Liabilities, Excluding Under Repo, Not Seasonally Adjusted)
        • Figure 2: MFI Sterling Deposits of UK Resident Non-Financial Businesses, by Industry Type, Top Eight, December 2015, (Share of Total)
        • Figure 3: UK MFIs’ Net Loans to Non-Financial Businesses, Q4 2013 - Q4 2015, by Size of Business, (£ Million, Not Seasonally Adjusted)
      • Market trends
        • Rates remain low for commercial lending
          • Figure 4: Average Interest Rate for UK MFI New Advances to PNFCs, at December 2011-15, (% Not Seasonally Adjusted)
        • Demand for credit from medium and large corporates still rising despite recent decline in availability
          • Figure 5: Availability of Corporate Credit to PNFCs in the Last Three Months, Q1 2010 - Q4 2015, by Business Size, (Net Percentage Balance)
        • Business confidence has remained positive since 2012 and has influenced demand in the market
          • Figure 6: Business Confidence Index, per Half-Year, 2005-2015, (Index Figure)
        • Ad spend declines for first time since 2012
          • Figure 7: Advertising Expenditure on Business Banking Services, by Advertiser, 2011-15, (% of Total Ad Spend)
        • Market factors
          • GDP growth slows in 2015, but remains positive
            • Large corporates taking greater share of private sector turnover
              • Profitability and business investment rising in the private sector
                • Continued struggles by mainstream lenders to provide finance to SMEs and legislative changes have piqued alternative lenders’ interest
                  • FCA launches study into investment and corporate banking
                    • Companies
                      • Figure 8: Number of Banks and Building Societies Operating in the UK, 2013-15, (Number)
                      • Figure 9: Profiled Companies’ Combined Income, 2010-2014, (£ Million)
                    • Forecast
                      • Global economic factors and EU referendum will influence deposit levels
                        • Figure 10: Forecast UK MFIs Sterling Deposits from UK Resident Non-Financial Corporations, 2016-2020, (£ Billion at 2015 prices)
                      • Increasing amount of regulatory measures threatening UK’s leading position
                        • Changes to operating model are required as new banks push towards a more digitalised environment
                          • What we think
                          • Key Insights

                              • Which factors will most affect market development?
                                • Why is there a need for a new operating model in the industry?
                                  • How are market players adopting to new technology?
                                  • Introduction

                                      • Definitions
                                        • Methodology
                                          • Abbreviations
                                            • Market positioning
                                              • The supplier
                                                • The customer
                                                • UK Economy

                                                  • Key points
                                                    • Overview
                                                      • Figure 11: UK GDP Quarterly Development, 2004-2015, (£ Billion)
                                                      • Figure 12: Quarters after GDP Peak, 1979, 1990 and 2008, (Number of Quarters and GDP as % of Pre-Downturn Peak)
                                                    • Inflation
                                                      • Interest rates
                                                        • House prices
                                                          • Consumer spending
                                                            • Manufacturing
                                                              • Figure 13: UK Output, by Industry, 2008-2015, (Index: Q1 2008 = 100)
                                                            • Business investment
                                                              • Figure 14: UK GFCF 2003-2015, (£ Million)
                                                            • Imports
                                                              • Exports
                                                              • Market Factors

                                                                • Key points
                                                                  • GDP growth slows in 2015, but remains positive
                                                                    • Figure 15: GDP Growth Rate, 2012-15, (% Change on Previous Quarter)
                                                                    • Figure 16: GDP Growth Rate, 2012-2015, (% Change on Previous Quarter)
                                                                  • Large corporates take majority of private sector turnover
                                                                    • Figure 17: Business Population in the UK, Private Sector, by Company Size, 2013-15, (Number, £ Billion and Millions Employed)
                                                                  • Profitability and business investment rising in the private sector
                                                                    • Figure 18: UK PNFCs Net Rate of Return, Q1 2010 - Q3 2015, (% Return)
                                                                    • Figure 19: UK PNFCs Net Rate of Return, Q1 2010-Q3 2015, (% Return)
                                                                    • Figure 20: UK Total Business Investment, 2011 -15, (Chained Volume Measures and Not Seasonally-Adjusted, £ Billion and % Annual Change)
                                                                    • Figure 21: UK Total Business Investment, 2011-15, (Chained Volume Measures and Not Seasonally-Adjusted, £ Billion)
                                                                  • Continued struggles by mainstream lenders to provide finance to SMEs and legislative changes have piqued alternative lenders’ interest
                                                                      • Figure 22: Company Insolvencies in England and Wales, 2011-15, (Number and % Annual Change)
                                                                      • Figure 23: Company Insolvencies in England and Wales, 2011-15, (Number)
                                                                    • Reports of positive business confidence at odds with decline in M&A activity
                                                                      • Figure 24: Mergers and Acquisitions of UK Companies, 2010 -2015*, (Units)
                                                                      • Figure 25: Mergers and Acquisitions of UK Companies, 2010-2015*, (Units)
                                                                    • FCA launches study into investment and corporate banking
                                                                    • Commercial Banking Market

                                                                      • Key points
                                                                        • The wider banking industry was under pressure in 2015
                                                                          • Although there were some positive results from banks’ commercial business operations
                                                                            • Commercial deposits from financial businesses fall in line with marginal fall in economic growth in 2015
                                                                              • Figure 26: UK MFIs Sterling Deposits from UK Resident Businesses, 2014-15, (£ Million Outstanding of Deposit Liabilities, Excluding Under Repo, Not Seasonally Adjusted)
                                                                              • Figure 27: UK MFIs Sterling Deposits from UK Resident Businesses, by Quarter End, 2014-15, (£ Million Outstanding of Deposit Liabilities, Excluding Under Repo, Not Seasonally Adjusted)
                                                                              • Figure 28: Aggregate Balances of the MBBGs Deposits, 2012-14, (£ Billion)
                                                                            • Market segmentation
                                                                              • Professional, scientific and technical activities continue to account for largest share of NFB deposits
                                                                                • Figure 29: MFI Sterling Deposits of UK Resident Non-Financial Businesses, by Industry Type, December 2015, (Share of Total)
                                                                                • Figure 30: MFI Sterling Deposits of UK Resident Non-Financial Businesses, by Industry Type, Top Eight, December 2015, (Share of Total)
                                                                              • SME sector performing strongly in wider recovery
                                                                                • Figure 31: MBBG Deposits of Small and Medium-Sized Businesses, 2011-15, (£ Billion)
                                                                                • Figure 32: MBBG Deposits of Small and Medium-Sized Businesses, 2011-15, (£ Billion)
                                                                            • Commercial Borrowing

                                                                              • Key points
                                                                                • Net lending still requires improvement following mixed performance in 2015
                                                                                  • Figure 33: UK MFIs’ Net Loans to Non-Financial Businesses, Q4 2013 - Q4 2015, by Size of Business, (£ Million, Not Seasonally Adjusted)
                                                                                  • Figure 34: UK MFIs’ Net Loans to Non-Financial Businesses, Q4 2013 - Q4 2015, by Size of Business, (£ Million, Not Seasonally Adjusted)
                                                                                • The Funding for Lending scheme is now focused on small business finance
                                                                                  • Rates remain low for commercial lending
                                                                                    • Figure 35: Average Interest Rate for UK MFI New Advances to PNFCs, at December in 2011-2015, (% Not Seasonally Adjusted)
                                                                                    • Figure 36: Average Interest Rate for UK MFI New Advances to PNFCs, at December 2011-15, (% Not Seasonally Adjusted)
                                                                                  • Demand for credit from medium and large corporates still rising
                                                                                    • Figure 37: Availability of Corporate Credit to PNFCs in the Last Three Months, Q1 2010 - Q4 2015, (Net Percentage Balance)
                                                                                    • Figure 38: Availability of Corporate Credit to PNFCs in the Last Three Months, Q1 2010 - Q4 2015, by Business Size, (Net Percentage Balance)
                                                                                    • Figure 39: Demand for Corporate Credit by PNFCs in the Last Three Months, Q1 2010 - Q4 2015, (Net Percentage Balance)
                                                                                    • Figure 40: Demand for Corporate Credit to PNFCs in the Last Three Months, Q1 2010 - Q4 2015, by Business Size, (Net Percentage Balance)
                                                                                • Market Trends

                                                                                  • Key points
                                                                                    • Increasing competition leading to the development of a new service model
                                                                                      • Commercial banking undergoing initial digitisation process
                                                                                        • Challenger banks switching focus to business finance and loans
                                                                                          • High take up for online business banking facilities
                                                                                            • Figure 41: Use of Business Banking Features in the Last Three Months, March 2015
                                                                                          • Business confidence has remained positive since 2012 and has influenced demand in the industry
                                                                                            • Figure 42: Business Confidence Index, per Half-Year, 2005-2015, (Index Figure)
                                                                                            • Figure 43: Business Confidence Index, per Half-Year, 2005-2015, (Index Figure)
                                                                                          • Write offs on loans to non-financial companies have fallen since 2011
                                                                                            • Figure 44: Write Offs of Loans to PNFCs from Banks and Building Societies, 2010-14, (£ Million, Not Seasonally Adjusted and % Annual Change)
                                                                                            • Figure 45: Write Offs to Loans to PNFCs from Banks and Building Societies, 2010-15, (£ Million, Not Seasonally Adjusted)
                                                                                        • Brand Communication and Promotion

                                                                                          • Key points
                                                                                            • Ad spend declines for first time since 2012
                                                                                              • Figure 46: Advertising Expenditure on Business Banking Services, 2011-15, (£ 000)
                                                                                              • Figure 47: Advertising Expenditure on Business Banking Services, 2011-15, (% of Total Ad Spend)
                                                                                            • Lloyds maintains position as largest campaign spender
                                                                                              • Figure 48: Advertising Expenditure on Business Banking Services, by Advertiser, 2011-2015, (£ 000)
                                                                                              • Figure 49: Advertising Expenditure on Business Banking Services, by Advertiser, 2011-15, (% of Total Ad Spend)
                                                                                            • Press dominates total advertising spend for business banking services
                                                                                              • Figure 50: Advertising Expenditure on Business Banking Services, by Media Type, 2011-2015, (£ 000)
                                                                                              • Figure 51: Advertising Expenditure on Business Banking Services, by Media Type, 2011-15, (% Share)
                                                                                          • Industry Structure

                                                                                            • Key points
                                                                                              • Industry development
                                                                                                • Challenger banks on the rise, but still can’t compete with existing major groups
                                                                                                  • The number of banks and building societies has remained largely unchanged since 2013
                                                                                                    • Figure 52: Number of Banks and Building Societies Operating in the UK, 2013-2015, (Number)
                                                                                                    • Figure 53: Number of Banks and Building Societies Operating in the UK, 2013-15, (Number)
                                                                                                  • Government scaling back its involvement in the banking sector
                                                                                                    • Figure 54: Cost to UK Government of Financial Interventions in Banking Sector, November 2015, (£ Billion)
                                                                                                • Company Profiles

                                                                                                  • Aldermore Bank

                                                                                                        • Figure 55: Financial Analysis of Aldermore Bank plc, 2010-14, (£ Million)
                                                                                                      • Company strategy
                                                                                                      • Barclays PLC

                                                                                                            • Figure 56: Financial Analysis of Barclays plc, 2011-15, (£ Million)
                                                                                                          • Company strategy
                                                                                                          • Clydesdale Bank PLC

                                                                                                                • Figure 57: Financial Analysis of Clydesdale Bank plc, 201115, (£ Million)
                                                                                                              • Company strategy
                                                                                                              • Co-operative Bank

                                                                                                                    • Figure 58: Financial Analysis of Co-operative Bank plc, 2010-14, (£ Million)
                                                                                                                  • Company strategy
                                                                                                                  • HSBC

                                                                                                                        • Figure 59: Financial Analysis of HSBC Bank, 2010-14, (£ Million)
                                                                                                                      • Company strategy
                                                                                                                      • Lloyds Banking Group

                                                                                                                            • Figure 60: Financial Analysis of Lloyds Banking Group, 2011-15, (£ Million)
                                                                                                                          • Company strategy
                                                                                                                          • Royal Bank of Scotland Group

                                                                                                                                • Figure 61: Financial Analysis of RBS Group, 2011-15, (£ Million)
                                                                                                                              • Company strategy
                                                                                                                              • Santander UK PLC

                                                                                                                                    • Figure 62: Financial Analysis of Santander UK plc, 2011-15, (£ Million)
                                                                                                                                  • Company strategy
                                                                                                                                    • Figure 63: Profiled Companies’ Combined Income, 2010-2014, (£ Million)
                                                                                                                                • Commercial Banking Forecast

                                                                                                                                  • Key points
                                                                                                                                    • Global economic factors and EU referendum will influence deposit levels
                                                                                                                                        • Figure 64: Forecast UK MFIs Sterling Deposits from UK Resident Non-Financial Corporations, 2016-2020, (£ Billion at 2015 prices, % Annual Change)
                                                                                                                                        • Figure 65: Forecast UK MFIs Sterling Deposits from UK Resident Non-Financial Corporations, 2016-2020, (£ Billion at 2015 prices)
                                                                                                                                      • Increasing amount of regulatory measures threatening UK’s leading position
                                                                                                                                        • Changes to operating model are required as new banks push towards a more digitalised environment
                                                                                                                                        • Further Sources and Contacts

                                                                                                                                          • Trade associations
                                                                                                                                            • Trade magazines
                                                                                                                                              • Trade exhibitions

                                                                                                                                              Companies Covered

                                                                                                                                              To learn more about the companies covered in this report please contact us.

                                                                                                                                              Commercial Banking and Finance - UK - March 2016

                                                                                                                                              £995.00 (Excl.Tax)