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Commercial Borrowing - UK - December 2016

“Post-credit crunch, the industry has faced a wave of new challenges, including unprecedented regulatory changes and, more recently, the uncertainty created following the Brexit vote. Each factor has impacted the sector in a number of ways, requiring lenders to review and develop their positions, while maintaining a more responsible lending approach where the principles of treating customers fairly remains integral.”
Lewis Cone, B2B Analyst

This report answers the following questions:

  • How has the UK's vote to leave the EU already impacted the market?
  • How did challenger banks perform in 2015? Have mainstream banks reacted in any way?
  • What does the future hold for commercial borrowing?

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Table of contents

  1. Executive Summary

      • Market size
        • Figure 1: UK MFIs’ net loans to non-financial businesses, Q4 2014 - Q3 2016, by size of business
        • Figure 2: UK MFIs’ cumulative net lending to UK non-financial businesses, 2014-15, by industrial sector
      • Market trends
        • Market factors
          • Brexit creates opportunities for business banking providers to deepen customer relationships
            • Commercial property transactions continue to rise
              • Profitability and business investment in the private sector rose in 2015 but may stagnate in 2016
                • Reports of falling business confidence at odds with rise in M&A activity
                  • Industry structure
                    • Forecast
                      • Gross lending expected to remain stable to 2021
                        • Figure 3: Forecast UK MFIs’ net loans ro non-financial businesses, 2017-21
                      • Alternative market expected to nearly double its lending by 2021
                        • Figure 4: Forecast UK alternative lending market, by funding type, 2017-21
                      • Total value of outstanding debt set to rise alongside short-term market uncertainty
                        • What we think
                        • Key Insights

                            • How has the UK’s vote to leave the EU already impacted the market?
                              • How did challenger banks perform in 2015? Have mainstream banks reacted in any way?
                                • What does the future hold for commercial borrowing?
                                • Introduction

                                    • Definitions
                                      • Methodology
                                        • Abbreviations
                                          • Market positioning
                                          • UK Economy

                                            • Key points
                                              • Overview
                                                • Figure 5: UK GDP, 2006-16
                                                • Figure 6: UK output, by industry, 2008-16
                                                • Figure 7: Quarters after GDP peak, 1979, 1990 and 2008
                                              • Inflation
                                                • Interest rates
                                                  • House prices
                                                    • Figure 8: UK house price changes, 2006-16
                                                  • Consumer spending
                                                    • Manufacturing
                                                      • Figure 9: UK manufacturing, 2014-16
                                                    • Business investment
                                                      • Figure 10: UK GFCF 2005-15
                                                    • Imports
                                                      • Exports
                                                      • Market Factors

                                                        • Key points
                                                          • Uncertainties surrounding economic growth yet to be realised
                                                            • Figure 11: GDP growth rate, Q1 2012- Q3 2016
                                                            • Figure 12: GDP growth rate, Q1 2012 - Q3 2016
                                                          • Brexit creates opportunities for business banking providers to deepen customer relationships
                                                            • Recent market changes have provided extra barrier to providing finance to SMEs
                                                                • Figure 13: Company insolvencies in England and Wales, 2011-15
                                                              • Commercial property transactions continue to rise
                                                                • Figure 14: Number of non-residential property transactions, 2011-15
                                                                • Figure 15: Number of non-residential property transactions, 2011-15
                                                              • Profitability and business investment in the private sector rose in 2015 but may stagnate in 2016
                                                                • Figure 16: UK PNFCs net rate of return, Q2 2011 - Q2 2016
                                                                • Figure 17: UK total business investment, 2011-16*
                                                                • Figure 18: UK total business investment, 2011-16*
                                                              • Reports of falling business confidence at odds with rise in M&A activity
                                                                • Figure 19: Mergers and acquisitions of UK companies, 2011-2016*
                                                              • Government schemes
                                                                • British Business Bank
                                                                  • Business Finance Support Finder
                                                                    • Enterprise Finance Guarantee
                                                                        • Figure 20: EFG lending, by number and value of loans offered and by number and value of loans drawn, 2009-15*
                                                                      • The National Loan Guarantee Scheme
                                                                        • Funding for Lending Scheme
                                                                          • BoE Stress Test
                                                                          • Market Size

                                                                            • Key points
                                                                              • Net lending on a pathway to recovery...
                                                                                • Figure 21: UK MFIs’ net loans to non-financial businesses, Q4 2014 - Q3 2016, by size of business
                                                                                • Figure 22: UK MFIs’ net loans to non-financial businesses, Q4 2014 - Q3 2016, by size of business
                                                                              • ... although outstanding loan amounts are on an upwards course over 2016
                                                                                  • Figure 23: UK total loan amounts outstanding to MFIs from non-financial businesses, November 2014 - October 2016, by size of business
                                                                                  • Figure 24: M4 loan amounts outstanding from PNFCs, November 2014 - October 2016
                                                                                  • Figure 25: M4 loan amounts outstanding from PNFCs, November 2014 - October 2016
                                                                                • Market segmentation
                                                                                  • Figure 26: UK MFIs’ cumulative net lending to UK non-financial businesses, 2014-15, by industrial sector
                                                                                  • Figure 27: UK MFIs’ cumulative net lending to UK non-financial businesses, 2014-15, by industrial sector
                                                                                • Further segmentation
                                                                                  • Alternative finance
                                                                                    • Peer-to-peer lending and crowdfunding
                                                                                      • Funding Circle continues to lead P2P business lending
                                                                                        • Figure 28: P2P business lending volume and market share, by lender, 2016*
                                                                                        • Figure 29: P2P business lending volume, by lender, 2016*
                                                                                      • Manufacturing industries and professional services apply for most P2P business loans
                                                                                        • Figure 30: P2P business borrowers, by industrial sector, 2014
                                                                                      • Crowdcube leads crowdfunding market, albeit with only four major competitors
                                                                                        • Figure 31: Crowdfunding volume and market share, by lender, 2016*
                                                                                        • Figure 32: Crowdfunding lending volume, by lender, 2016*
                                                                                      • Bridging finance
                                                                                          • Figure 33: UK bridging loans market value, in aggregated loan balances, 2012-16
                                                                                        • Commercial property (real estate) finance
                                                                                          • Upward pressure on yields due to uncertainty
                                                                                            • Debt rises for first time since 2008
                                                                                              • Figure 34: Aggregated value of outstanding debt in loan books secured on UK commercial property, 2011-15
                                                                                              • Figure 35: Aggregated volume of outstanding debt in loan book secured on UK commercial property, 2011-15
                                                                                            • Loan originations continue to rise, but uncertainties could derail momentum
                                                                                              • Figure 36: Gross value of annual loan originations, 2011-15
                                                                                            • UK banks and building societies’ share of new loan originations declines
                                                                                              • Figure 37: Gross value of loan originations, by allocation, 2011-15
                                                                                              • Figure 38: Value of outstanding loan books secured on UK commercial property, 2015, by type of lender
                                                                                            • Offices and retail property still dominate the share of loans allocated, but the industrial and hotel sectors are strengthening their market share
                                                                                              • Figure 39: Allocation of outstanding loans to investment and owner-occupied property, by type of use, 2014
                                                                                            • Loans secured against ‘alternative’ real estate overtakes traditional real estate for the first time
                                                                                              • SME Finance
                                                                                                • SME funding gap
                                                                                                  • Improvements made to alternative finance accessibility
                                                                                                    • London and the south east account for a third of SME lending in Britain
                                                                                                      • Figure 40: SME turnover and lending, by region, December 2015
                                                                                                      • Figure 41: SME lending, by region, December 2015
                                                                                                    • SMEs most in need of finance for cash flow and capital equipment
                                                                                                      • Figure 42: SME lending, by reason, 2015
                                                                                                    • Value of SME loan balances has declined since 2013
                                                                                                      • Figure 43: Value of SME loan balances, by region, 2012-16*
                                                                                                      • Figure 44: Value of SME loan balances, by Region, 2012-15
                                                                                                  • Market Trends

                                                                                                    • Key points
                                                                                                      • Business confidence influences borrowing demand, but latest index figures draw concern
                                                                                                        • Figure 45: Business confidence index, per half-year, 2006-16
                                                                                                        • Figure 46: Business confidence index, per half-year, 2006-16
                                                                                                      • Write offs on loans to non-financial companies continues to fall
                                                                                                        • Figure 47: Write offs of loans to PNFCs from banks and building societies, 2011-16*
                                                                                                      • Demand for credit falls in 2016 with availability stagnating
                                                                                                        • Figure 48: Availability of corporate credit to PNFCs in the last three months, Q4 2010 - Q3 2016, by business size
                                                                                                        • Figure 49: Availability of corporate credit to PNFCs in the last three months, Q4 2010 - Q3 2016, by business size
                                                                                                        • Figure 50: Demand for corporate credit by PNFCs in the last three months, Q4 2010 - Q3 2016, by business size
                                                                                                        • Figure 51: Demand for corporate credit to PNFCs in the last three months, Q4 2010 - Q3 2016, by business size
                                                                                                      • Commercial lending rates experience further decline
                                                                                                        • Figure 52: Average interest rate for UK MFI new advances to PNFCs, at October in 2012-16
                                                                                                      • Funding for Lending scheme extended once again until 2018
                                                                                                          • Figure 53: Net loans to UK SMEs from FLS participants, 2014-15
                                                                                                          • Figure 54: Net loans to UK SMEs from FLS participants, 2014-15
                                                                                                      • Industry Structure

                                                                                                        • Key points
                                                                                                          • Industry development
                                                                                                            • Challenger banks on the rise, but market obstacles likely to protect existing players
                                                                                                              • Banking license application process has been made easier, but the number of application withdrawals has risen...
                                                                                                                • ... and therefore the number of banks and building societies has remained fairly constant since 2013
                                                                                                                  • Figure 55: Number of banks and building societies operating in the UK, 2013-16
                                                                                                                  • Figure 56: Number of banks and building societies operating in the UK, 2013-15
                                                                                                              • Company Profiles

                                                                                                                • Aldermore Bank

                                                                                                                      • Figure 57: Financial analysis of Aldermore Bank plc, 2011-15
                                                                                                                    • Company strategy
                                                                                                                    • Barclays Plc

                                                                                                                          • Figure 58: Financial analysis of Barclays plc, 2011-15
                                                                                                                        • Company strategy
                                                                                                                        • Clydesdale Bank Plc

                                                                                                                              • Figure 59: Financial analysis of Clydesdale Bank Plc, 2012-16
                                                                                                                            • Company strategy
                                                                                                                            • Funding Circle

                                                                                                                                  • Figure 60: Financial analysis of Funding Circle, 2011-15
                                                                                                                                • Company strategy
                                                                                                                                • GE Capital UK

                                                                                                                                      • Figure 61: Financial analysis of GE Capital Bank Limited, 2011-15
                                                                                                                                    • Company strategy
                                                                                                                                    • HSBC Bank plc

                                                                                                                                          • Figure 62: Financial analysis of HSBC Bank, 2011-15
                                                                                                                                        • Company strategy
                                                                                                                                        • Lloyds Banking Group

                                                                                                                                              • Figure 63: Financial analysis of Lloyds Banking Group, 2011-15
                                                                                                                                            • Company strategy
                                                                                                                                            • RBS Group

                                                                                                                                                  • Figure 64: Financial analysis of RBS Group, 2011-15
                                                                                                                                                • Company strategy
                                                                                                                                                • Santander UK

                                                                                                                                                      • Figure 65: Financial analysis of Santander UK Plc, 2011-15
                                                                                                                                                    • Company strategy
                                                                                                                                                    • Shawbrook Bank

                                                                                                                                                          • Figure 66: Financial analysis of Shawbrook, 2011-15
                                                                                                                                                        • Company strategy
                                                                                                                                                            • Figure 67: Profiled companies’ combined turnover, 2011-15
                                                                                                                                                        • Forecast

                                                                                                                                                          • Key points
                                                                                                                                                            • Traditional (mainstream) lenders
                                                                                                                                                              • Gross lending expected to remain stable to 2021
                                                                                                                                                                • Figure 68: Forecast UK MFIs’ net loans to non-financial businesses, 2017-21
                                                                                                                                                                • Figure 69: Forecast UK MFIs’ net loans to non-financial businesses, 2017-21
                                                                                                                                                              • Loan write-offs anticipated to decline to 2019 before rising thereafter
                                                                                                                                                                • Figure 70: Write offs of loans to PNFCs from banks and building societies, 2017-21
                                                                                                                                                              • SME finance
                                                                                                                                                                • Alternative finance
                                                                                                                                                                  • Alternative market expected to nearly double its lending by 2021
                                                                                                                                                                    • Figure 71: Forecast UK alternative lending market, by funding type, 2017-21
                                                                                                                                                                    • Figure 72: Forecast UK alternative lending market, by funding type, 2017-21
                                                                                                                                                                  • Commercial property (real estate) finance
                                                                                                                                                                    • Lower economic growth and the low interest rate environment will impact commercial mortgage lending
                                                                                                                                                                      • Figure 73: Forecast gross value of annual loan originations, 2016-20
                                                                                                                                                                      • Figure 74: Forecast gross value of annual loan originations, 2016-20
                                                                                                                                                                    • Total value of outstanding debt set to rise alongside short-term market uncertainty
                                                                                                                                                                      • Figure 75: Forecast value of outstanding debt in loan books secured on UK commercial property, 2016-20
                                                                                                                                                                      • Figure 76: Forecast value of outstanding debt in loan books secured on UK commercial property, 2016-20
                                                                                                                                                                  • Further Sources and Contacts

                                                                                                                                                                    • Trade associations
                                                                                                                                                                      • Asset Based Finance Association
                                                                                                                                                                        • British Bankers’ Association
                                                                                                                                                                          • British Private Equity & Venture Capital Association
                                                                                                                                                                            • Finance and Leasing Association
                                                                                                                                                                              • Loan Market Association
                                                                                                                                                                                • National Association of Commercial Finance Brokers
                                                                                                                                                                                  • Trade magazines
                                                                                                                                                                                    • Bridging & Commercial
                                                                                                                                                                                      • Commercial Property Monthly
                                                                                                                                                                                        • Credit Strategy
                                                                                                                                                                                          • The Banker
                                                                                                                                                                                            • Trade exhibitions
                                                                                                                                                                                              • Business Funding Show
                                                                                                                                                                                                • NACFB Commercial Finance Expo 2017
                                                                                                                                                                                                  • Credit Summit 2017
                                                                                                                                                                                                    • The 4th Annual Institutional & Alternative Lending Conference

                                                                                                                                                                                                    Commercial Borrowing - UK - December 2016

                                                                                                                                                                                                    US $1,321.06 (Excl.Tax)