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    Trends in Lending

    July 2010

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    BANK OF ENGLAND

    Trends in LendingJuly 2010This publication presents the Bank of Englands assessment of the latest trends in lending to the

    UK economy. It draws mainly on long-established official data sources, such as the existing

    monetary and financial statistics collected by the Bank. These data are supplemented by the

    results of a new data set, established by the Bank in late 2008, to provide more timely data

    covering aspects of lending to the UK corporate and household sectors. (1)

    The data set covers the major UK lenders:(2) Banco Santander, Barclays, HSBC, Lloyds BankingGroup, Nationwide and Royal Bank of Scotland. Together they accounted for around 65% of

    the stock of lending to businesses, 45% of the stock of consumer credit, and 75% of the stock

    of mortgage lending at the end of 2009. These data have provided a useful input to discussions

    between the major UK lenders and Bank staff, giving staff a better understanding of the

    business developments driving the figures and this intelligence is reflected in the report. The

    report also draws on intelligence gathered by the Banks network of Agents and from market

    contacts, as well as the results of other surveys. The focus of the report is on lending, but

    broader credit market developments, such as those relating to trade credit or capital market

    issuance, may be discussed where relevant.

    The report covers official data up to May 2010, supplemented by data from the major UK

    lenders and intelligence gathered up to end-June 2010. Unless stated otherwise, the data

    reported cover lending in both sterling and foreign currency, expressed in sterling terms. The

    major UK lenders data are provided to the Bank on a best endeavours basis. This, together

    with their relative timeliness, means that they may not be as accurate as established data sets.

    As a result, care is needed in interpreting the major UK lenders data presented in this report.

    (1) For a fuller background please refer to the first edition of Trends in Lending available at:www.bankofengland.co.uk/publications/other/monetary/TrendsApril09.pdf.

    (2) Membership of the group of major UK lenders is based on the provision of credit to UK-resident companies and individuals, regardlessof the country of ownership.

    Proposed changes to Trends in Lending and theassociated data collection

    The Bank of England launched Trends in Lending in April 2009 topresent the Banks assessment of the latest developments in lendingto the UK economy. It was launched at a time when the UK andworld economy had entered a deep downturn, with the banking andfinancial systems in a fragile state. This publication has beeninformed by a new data set, established by the Bank of England in late2008 to provide more timely data covering aspects of lending by themajor UK lenders to the corporate and household sectors.

    This experience has highlighted the long-term value of some parts ofthe new data set. As a result, the Bank intends to migrate those partsof the new data collection that are seen to have enduring value to the

    Banks regular monthly statistical forms, probably with a largernumber of reporting entities. The rest of the data collection, much ofwhich is already captured in the Banks existing statistics, wouldcease. Although the data will be published on a slightly less timelybasis as a result, the quality of these statistics should be improved forthe long term. The Bank of England also intends to reduce thefrequency of Trends in Lending from a monthly to a quarterlypublication.

    A formal consultation with more details on the proposed changes willbe launched in an article in the next edition of Bankstats(1) to bepublished on 29 July 2010. The consultation will be open to all

    interested parties.

    (1) Available at www.bankofengland.co.uk/statistics/ms/articles.htm.

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    Executive summary 3

    1 Lending to UK businesses 4

    Box Recent trends in syndicated lending 8

    2 Mortgage lending 9

    3 Consumer credit 11

    Glossary and other information 13

    Contents

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    Executive summary 3

    The flow of net lending to UK businesses remained negative in May, and was more so than in April. Credit availability to

    businesses overall increased, but by less than lenders had expected, according to the Bank of Englands 2010 Q2 Credit Conditions

    Survey. In recent discussions, most major UK lenders reported that spreads over reference rates on new lending to large

    businesses had levelled off after recent declines. The Banks network of Agents reported that demand for credit remained muted.

    In recent discussions, the major UK lenders expected corporate credit demand to remain subdued in coming months.

    The flow of net mortgage lending by all UK-resident mortgage lenders increased in May. Gross mortgage approvals declined

    slightly in June according to data from the major UK lenders. In the 2010 Q2 Credit Conditions Survey, a small balance of lenders

    reported an increase in the amount of new secured credit made available to households, though a decline in the availability ofcredit was expected in the next three months. Demand for secured credit for house purchase was reported to have weakened in

    2010 Q2. The major UK lenders expected demand for secured lending to remain muted.

    Total net consumer credit flows turned positive again in May, though the annual growth rate in the stock of lending remained flat.

    Spreads between effective interest rates and Bank Rate and Libor remain significantly wider than in late 2008, particularly on

    interest-bearing credit cards, reflecting in part heightened credit risk. Respondents to the 2010 Q2 Credit Conditions Survey

    reported credit scoring criteria had tightened for non credit card lending, though credit scoring for credit cards was reported to

    have eased somewhat for the first time since 2008 Q2.

    Executive summary

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    4 Trends in Lending July 2010

    The flow of net lending to UK businesses remained negative in May, and was more so than in April.Credit availability to businesses overall increased, but by less than lenders had expected, accordingto the Bank of Englands 2010 Q2 Credit Conditions Survey. In recent discussions, most major UKlenders reported that spreads over reference rates on new lending to large businesses had levelledoff after recent declines. The Banks network of Agents reported that demand for credit remainedmuted. In recent discussions, the major UK lenders expected corporate credit demand to remainsubdued in coming months.

    Recent lending dataOfficial data covering lending by all UK-resident banks and

    building societies indicated that the stock of lending to

    businesses contracted by 2.3 billion in May, more than the

    reduction in April (Table 1.A). The annual rate of contraction

    of the stock of loans eased slightly to 8.1%. Data from the

    major UK lenders indicated that their net lending remained

    weak in June.

    Net capital market issuance by UK businesses was positive in

    May, due to a pickup in net equity issuance (Chart 1.1).

    Nonetheless, total net capital market issuance since the start

    of the year has been lower than a year earlier. In recent

    discussions, some lenders thought that many companies had

    pre-funded themselves during 2009. Most lenders also

    reported that the intensification of financial market volatility

    since the start of May had affected bond issuance volumes in

    the near term, though access to markets had opened up

    somewhat in recent weeks. Net capital market issuance in

    June was negative.

    Previous editions of Trends in Lending have discussed howearlier capital market issuance had been used by some

    businesses to repay bank debt. Consistent with a weakening of

    capital market issuance relative to a year earlier, gross

    repayments of bank debt by businesses to the major UK

    lenders in 2010 Q2 were lower than a year earlier though rose

    slightly on the quarter and remained higher than gross lending

    (Chart 1.2).

    The reported impact of the recent financial market volatility on

    net capital issuance was also reflected in the responses of chief

    financial officers (CFOs) to the Deloitte CFO Surveyconducted

    in June. A majority of CFOs indicated that they did not view

    equity issuance as an attractive source of external finance,

    with the attractiveness of bond issuance also decreasing

    somewhat on the quarter, though bond issuance remained the

    1 Lending to UK businesses

    Table 1.A Lending to UK businesses(a)

    Averages 2010

    2007 2008 2009 2009 2009Q3 Q4 Jan. Feb. Mar. Apr. May

    Net monthly flow( billions) 7.3 3.8 -3.8 -7.1 -2.4 -6.7 0.3 -4.0 -1.1 -2.3

    Three-monthannualised growthrate (per cent) 20.5 10.6 -7.5 -14.7 -6.0 -7.1 -7.1 -7.5 -3.6 -5.4

    Twelve-monthgrowth rate (per cent) 16.7 17.5 -1.7 -4.7 -7.7 -9.3 -9.0 -9.5 -8.5 -8.1

    (a) Lending by UK monetary financial institutions to PNFCs. Data cover lending in both sterling and foreigncurrency, expressed in sterling terms. Seasonally adjusted.

    20

    15

    10

    5

    0

    5

    10

    15

    20

    25

    Jan. May Sep. Jan. May Sep. Jan. May Sep. Jan. May

    billions

    Commercial paper

    Equity

    Bonds

    Loans

    Total

    2007 08 09 10

    +

    (a) Funds raised by PNFCs from UK