News Column

UK bank credit lags G7 as BRIC credit explodes

August 4, 2014

MICHAEL BIRD



UK BANK lending to the private sector is still well behind the average for G7 countries, while that in developing economies has surged, according to research published this morning.


Data compiled by UHY Hacker Young shows that, taking inflation into account, British bank lending to private sector companies dropped by another 2.24 per cent in real terms during 2013. During the same period, lending began to rise among the G7 countries on average, up by 0.13 per cent.


Lending rose by 3.04 per cent in Japan and 3.76 per cent in Canada, along with smaller declines in the US and Germany. Of the major developed countries, only Italy saw a steeper decline than the UK, with a 3.53 per cent fall recorded.


"Although the recovery is now taking hold in many developed econ-omies such as the UK, problems over bank funding are far from over. Many banks are still unable to lend, especially to smaller businesses, leaving them facing a hidden credit crunch," said Laurence Sacker of UHY Hacker Young.


Of the 23 countries assessed by the accountancy firm, only seven performed more poorly than the UK, six of which were in the Eurozone.


"Demand for loans is increasing, but the banks are generally not granting new requests unless they are from existing customers with a good track record and security."


In comparison to even the strong-est advanced economies, lending in the developing giants of Brazil, Rus-sia, India and China (the BRIC nat-ions) is surging ahead. Even after accounting for price growth, lending among the group rose by 16.29 per cent last year.


In nominal terms, without acc-ounting for inflation, Brazilian credit has expanded by an astonishing 115.2 per cent during the four years to 2013. Chinese lending has risen by a similar amount, up by 112.14 per cent.


Sacker added: "While typically banks have been comfortable with their emerging markets lending because overall levels of indebt-edness are relatively low, there are now growing concerns about whether debt levels in China are sustainable."


The International Monetary Fund's latest report on the Chinese econ-omy suggests that growth will slow to 6.3 per cent in the next five years, far from the double-digit figures seen before the financial crisis.


The international watchdog also cited China's rapid credit growth as one of the major risks to the outlook for the economy.


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Source: City A.M. (UK)


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