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UK Commercial Banking and Finance market report

“The UK’s decision to leave the European Union in June 2016 has created an environment of uncertainty for small business owners, which is likely to continue for the foreseeable future while exit negotiations take place. ‘Brexit’, as well as low interest rates and potentially weaker economic growth going forward, is expected to weigh on UK-focused banks.”
– 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?
  • Has the market been affected by the result of the referendum? How could it be affected by the UK’s exit over the short term?
  • Has regulation restricted industry development?
  • Can challenger banks make a significant impact? Or is the market still dominated by the ‘big four’?
  • What does the future hold for commercial banking and finance?

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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, 2015-16
        • Figure 2: MFI Sterling Deposits of UK Resident Non-Financial Businesses, by Industry Type, Top Eight, January 2017
        • Figure 3: UK MFIs’ Net Loans to Non-Financial Businesses, Q4 2014 - Q4 2016, by Size of Business
      • Market Trends
        • Emergence of ‘fintech’ driving change in industry operations
          • Downward trend in business confidence reflects general uncertainty
            • Commercial lending rates experience further decline
              • Figure 4: Average Interest Rate for UK MFI New Advances to PNFCs, at January 2013-17
            • Demand and availability of credit fell in 2016 with no signs of change ahead in 2017
              • Figure 5: Demand for Corporate Credit to PNFCs in the Last Three Months, Q1 2011 - Q4 2016, by Business Size
            • Market Factors
              • ‘Brexit’ could lead to massive industry overhaul
                • Business investment levels continue to rise while profitability stagnates in the private sector
                  • Highest number of inward and domestic M&A deals since 2011, with a small number of very high-value deals also setting a record deal value high
                    • Companies
                      • Figure 6: Profiled Companies’ Combined Income, 2012-2016*
                    • Forecast
                      • Slower growth in deposit levels expected due to increased uncertainty
                        • Figure 7: Forecast UK MFIs Sterling Deposits from UK Resident Non-Financial Corporations, 2017-2021
                      • Gaps in SME banking service provision still offer vast opportunities
                        • What We Think
                        • Key Insights

                            • How is ‘Brexit’ going to influence market development?
                              • Have major commercial banks started to embrace technological change?
                                • What does the future hold for the industry?
                                • Introduction

                                    • Definitions
                                      • Methodology
                                        • Abbreviations
                                        • Market Positioning

                                            • The supplier
                                              • The customer
                                              • UK Economy

                                                • Key Points
                                                  • Overview
                                                    • Figure 8: UK GDP, 2006-2016
                                                    • Figure 9: UK Output, by Industry, 2008-2016
                                                    • Figure 10: Quarters after GDP Peak, 1979, 1990 and 2008
                                                  • Inflation
                                                    • Interest rates
                                                      • House prices
                                                        • Figure 11: UK House Price changes, 2006-2016
                                                      • Consumer spending
                                                        • Manufacturing
                                                          • Figure 12: UK Manufacturing, 2014-17
                                                        • Business investment
                                                          • Figure 13: UK GFCF 2005-16
                                                        • Imports
                                                          • Exports
                                                          • Market Factors

                                                            • Key Points
                                                              • ‘Brexit’ could lead to massive industry overhaul
                                                                • Annual GDP growth rises in 2016, but challenges await
                                                                  • Figure 14: GDP Growth Rate, 2013-16, (% Change on Previous Quarter)
                                                                  • Figure 15: GDP Growth Rate, 2013-2016
                                                                • Smaller number of large corporates account for majority of private sector turnover
                                                                  • Figure 16: Business Population in the UK, Private Sector, by Company Size, 2013-16
                                                                • Business investment levels continue to rise while profitability stagnates in the private sector
                                                                  • Figure 17: UK PNFCs Net Rate of Return, Q1 2011 - Q3 2016
                                                                  • Figure 18: UK PNFCs Net Rate of Return, Q1 2011 - Q3 2016
                                                                  • Figure 19: UK Total Business Investment, 2012 -16
                                                                  • Figure 20: UK Total Business Investment, 2012-16*
                                                                • FLS provides greater lending to SMEs but cloudy outlook, as shown by greater insolvencies, remains on the horizon
                                                                    • Figure 21: Company Insolvencies in England and Wales, 2012-16
                                                                    • Figure 22: Company Insolvencies in England and Wales, 2012-16
                                                                    • Figure 23: Mergers and Acquisitions of UK Companies, 2012 -2016
                                                                    • Figure 24: Mergers and Acquisitions of UK Companies, 2012-2016
                                                                  • FCA publishes findings from a study into investment and corporate banking
                                                                  • Commercial Banking Market

                                                                    • Key Points
                                                                      • Annual bank stress test reveals concern over industry robustness
                                                                        • The banking industry shows initial signs of strain ahead of the challenges 2017 will pose...
                                                                          • ... but banks’ commercial operations remain largely buoyant
                                                                            • Figure 25: UK MFIs Sterling Deposits from UK Resident Businesses, January 2015-17
                                                                            • Figure 26: UK MFIs Sterling Deposits from UK Resident Businesses, by Quarter End, 2015-16
                                                                          • Professional, scientific and technical activities maintains its largest share of NFB deposits
                                                                            • Figure 27: MFI Sterling Deposits of UK Resident Non-Financial Businesses, by Industry Type, January 2017
                                                                            • Figure 28: MFI Sterling Deposits of UK Resident Non-Financial Businesses, by Industry Type, Top Eight, January 2017
                                                                          • SME sector continuing to perform strongly
                                                                              • Figure 29: MBBG Deposits of Small and Medium-Sized Businesses, December, 2012-16
                                                                              • Figure 30: MBBG Deposits of Small and Medium-Sized Businesses, December, 2012-16
                                                                          • Commercial Borrowing

                                                                            • Key Points
                                                                              • Net lending remained positive in 2016...
                                                                                • Figure 31: UK MFIs’ Net Loans to Non-Financial Businesses, Q4 2014 - Q4 2016, by Size of Business
                                                                                • Figure 32: UK MFIs’ Net Loans to Non-Financial Businesses, Q4 2014 - Q4 2016, by Size of Business
                                                                              • Funding for Lending scheme extended to 2018
                                                                                • Commercial lending rates experience further decline
                                                                                  • Figure 33: Average Interest Rate for UK MFI New Advances to PNFCs, at January in 2013-2017
                                                                                  • Figure 34: Average Interest Rate for UK MFI New Advances to PNFCs, at January in 2013-17
                                                                                • Demand and availability of credit fell in 2016 with no signs of change ahead in 2017
                                                                                  • Figure 35: Availability of Corporate Credit to PNFCs in the Last Three Months, Q1 2011 - Q4 2016, by Business Size
                                                                                  • Figure 36: Availability of Corporate Credit to PNFCs in the Last Three Months, Q1 2011 - Q4 2016, by Business Size
                                                                                  • Figure 37: Demand for Corporate Credit by PNFCs in the Last Three Months, Q1 2011 - Q4 2016, by Business Size,
                                                                                  • Figure 38: Demand for Corporate Credit to PNFCs in the Last Three Months, Q1 2011 - Q4 2016, by Business Size
                                                                              • Market Trends

                                                                                • Key Points
                                                                                  • Emergence of ‘fintech’ driving change in industry operation
                                                                                    • Online business banking frequently used by customers
                                                                                      • Figure 39: Use of Business Banking Features in the Last Three Months, June 2016
                                                                                    • Downward trend in business confidence reflects general uncertainty
                                                                                      • Figure 40: Business Confidence Index, per Half-Year, 2006-2016
                                                                                      • Figure 41: Business Confidence Index, per Half-Year, 2006-2016
                                                                                    • Write offs on loans to non-financial companies fall to seven-year low
                                                                                      • Figure 42: Write Offs of Loans to PNFCs from Banks and Building Societies, 2012-16
                                                                                      • Figure 43: Write Offs of Loans to PNFCs from Banks and Building Societies, 2012-16
                                                                                  • Brand Communication and Promotion

                                                                                    • Key Points
                                                                                      • Ad spend rises for the first time in three years
                                                                                        • Figure 44: Advertising Expenditure on Business Banking Services, 2012-16
                                                                                        • Figure 45: Advertising Expenditure on Business Banking Services, 2012 and 2016
                                                                                      • Barclays reclaims position as largest campaign spender
                                                                                        • Figure 46: Advertising Expenditure on Business Banking Services, by Advertiser, 2012-2016
                                                                                        • Figure 47: Advertising Expenditure on Business Banking Services, by Advertiser, 2012 and 2016
                                                                                      • Digital advertising overtakes press as main recipient of advertising expenditure
                                                                                        • Figure 48: Advertising Expenditure on Business Banking Services, by Media Type, 2012-2016
                                                                                        • Figure 49: Advertising Expenditure on Business Banking Services, by Media Type, 2012 and 2016
                                                                                    • Industry Structure

                                                                                      • Key Points
                                                                                        • Industry Development
                                                                                          • Higher number of challenger banks entering the market, but still yet to offer significant threat to the dominant banking groups
                                                                                            • The number of banks and building societies has remained largely unchanged since 2013
                                                                                              • Figure 50: Number of Banks and Building Societies Operating in the UK, 2013-2016
                                                                                              • Figure 51: Number of Banks and Building Societies Operating in the UK, 2013-16
                                                                                            • Government continues to scale back its involvement in the banking sector
                                                                                              • Figure 52: Cost to UK Government of Financial Interventions in Banking Sector, at 30 September 2016
                                                                                            • RBS
                                                                                              • Lloyds
                                                                                              • Company Profiles

                                                                                                • Aldermore Bank

                                                                                                      • Figure 53: Financial Analysis of Aldermore Bank plc, 2012-16
                                                                                                    • Company Strategy
                                                                                                    • Barclays PLC

                                                                                                          • Figure 54: Financial Analysis of Barclays plc, 2012-16
                                                                                                        • Company Strategy
                                                                                                        • Clydesdale Bank PLC

                                                                                                              • Figure 55: Financial Analysis of Clydesdale Bank plc, 201216
                                                                                                            • Company Strategy
                                                                                                            • Co-operative Bank

                                                                                                                  • Figure 56: Financial Analysis of Co-operative Bank plc, 2011-15
                                                                                                                • Company Strategy
                                                                                                                • HSBC

                                                                                                                      • Figure 57: Financial Analysis of HSBC Bank, 2011-15
                                                                                                                    • Company Strategy
                                                                                                                    • Lloyds Banking Group

                                                                                                                          • Figure 58: Financial Analysis of Lloyds Banking Group, 2011-15, (£ Million)
                                                                                                                        • Company Strategy
                                                                                                                        • Royal Bank of Scotland Group

                                                                                                                              • Figure 59: Financial Analysis of RBS Group, 2012-16, (£ Million)
                                                                                                                            • Company Strategy
                                                                                                                            • Santander UK PLC

                                                                                                                                  • Figure 60: Financial Analysis of Santander UK plc, 2012-16
                                                                                                                                • Company Strategy
                                                                                                                                  • Figure 61: Profiled Companies’ Combined Income, 2012-2016*, (£ Million)
                                                                                                                              • Commercial Banking Forecast

                                                                                                                                • Key Points
                                                                                                                                  • Ongoing developments in Brexit negotiations will impact market development
                                                                                                                                    • Slower growth in deposit levels expected due to level of uncertainty
                                                                                                                                        • Figure 62: Forecast UK MFIs Sterling Deposits from UK Resident Non-Financial Corporations, 2017-2021
                                                                                                                                        • Figure 63: Forecast UK MFIs Sterling Deposits from UK Resident Non-Financial Corporations, 2017-2021
                                                                                                                                      • Increasing presence of tech-driven challengers will drive a change in the banking operating model
                                                                                                                                        • Gaps in SME banking service provision still offer vast opportunities
                                                                                                                                        • Further Sources and Contacts

                                                                                                                                          • Trade Associations
                                                                                                                                            • Trade Magazines
                                                                                                                                              • Trade Exhibitions

                                                                                                                                              Companies Covered

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