ITEM Club cuts business lending forecast
In its Spring forecast Ernst & Young’s (E&Y) ITEM Club is predicting subdued growth in business lending – growth in 2014 is expected to be just 1.5% as corporates increasingly turn to other sources of finance to drive investment.
Businesses are expanding investment but this year’s forecast for growth in lending has fallen from 2.5% to 1.5%. By 2018, the stock of business lending is expected to be 10% below 2008 levels.
According to the report, firms are turning to non-bank routes to raise capital, relying increasingly on bond issuance, which is up almost 20% since 2009, and to a lesser extent other sources like peer-to-peer lending.
In addition, growing profits and existing large cash balances mean that businesses can make more use of retained earnings to finance investment.
Omar Ali, UK head of banking and capital markets for EY, comments: “There’s no denying that some of the banks’ traditional core market is looking to alternative sources of finance.”
However, Mr Ali points out that SMEs are still looking to banks as their primary source of funding and suggests that given the pressure on banks’ traditional lending client base, they may look to rebalance more towards SMEs.