For in-depth analysis on wider issues surrounding business credit risk look no further than Graydon’s In Credit blog.

Bank of England’s Credit Conditions Survey holds no surprises

09 January 2012

BOEs Q4 2011 credit conditions survey reported banks seeing a sharp fall in loan demand from small businesses. About as surprising as telling us that there is a sale at DFS. Comment from the Federation of Small Businesses hints at why demand for loans is so low; nearly a quarter of its 200,000 members fear their application would be rejected or the loan terms would be too onerous.

Too onerous indeed. The same Bank of England report tells us the cost of lending increased for businesses big and small. Little wonder then that business has lost its appetite for loans. Companies across the spectrum are avoiding debt because of the cost and because lack of confidence makes them risk averse.

The survey provides precious little optimism for SMEs in this new quarter with loan costs rising and credit scoring criteria tightening. To SMEs, bank loan policy must seem akin to providing umbrellas when the sun shines and taking them back when it rains. And right now the economic rain is torrential. The survey was too early to report the impact of the government's autumn credit easing so we'll have to wait to see if this improves things.

This week it's expected that the Bank of England's Monetary Policy Committee will announce yet more quantitative easing (QE) and push it up to around 25% of GDP. With big companies sitting on a mountain of cash it's difficult for me to see why additional QE should alter their strategy and tempt them to invest.

Deloitte's finance director survey confirms this view with 87% of FDs believing this is a bad time to be taking additional risk onto their balance sheet as their major priority for 2012 is to reduce costs and increase cash flow.

This entry was written by Administrator, posted on 09 January 2012 Bookmark the permalink. Follow any comments here with the RSS feed for this post. You can post a comment.

Post a comment

credit risk intelligence