Anecdotal evidence suggests that some 17% of small and medium-sized enterprises (SMEs) in the UK have used a government loan for support during the COVID-19 crisis. However, there is concern that some lenders have blocked access to these state-backed loans, which has endangered the survival of these businesses.

The most notable change in funding patterns since the financial crisis has been the reduction in bank lending. Between 2000 and 2007, average net lending by banks to UK non-financial corporations was £38bn per year, but levels had not reached near this figure until the onset of the COVID-19 pandemic and the introduction of several business support schemes by the government.

By 24 January, 2021, UK businesses have benefited from 1,559,226 government-guaranteed loans worth £70.72bn to support their cash flow during the crisis through schemes delivered by the British Business Bank.

While total deposits from non-financial corporations (NFCs) have generally risen over the past two years, deposits from NFCs have risen across all sectors due to the impact of the pandemic, with businesses looking to keep cash in reserve to help them survive the current climate.

The receipt of funds from the direct government support for workers combined with reduced operating expenses and tax deferrals resulted in a substantial rise in cash deposit holdings for businesses.

In September 2020, total business sterling deposits reached a record high of £1.22trn and ended 2020 at £1.19trn.

• The impact of COVID-19 and Brexit on commercial banking and finance services.

• How the industry will adapt to the post-COVID-19 and Brexit environment.

• The value of the market in 2021 and beyond.

This update on the impact that COVID-19 is having on the commercial banking and finance industry was prepared on 15 February, 2021.

The first COVID-19 cases were confirmed in the UK at the end of January 2020, with a small number of cases in February. As the case level rose, the government ordered the closure of non-essential stores on 20 March, 2020.

A wider lockdown requiring people to stay at home except for essential shopping, exercise and work ‘if absolutely necessary’ followed on 23 March. It wasn’t until 15 June that non-essential stores were allowed to reopen, followed by pubs, restaurants, hotels and hairdressers on 4 July, and many beauty businesses on 13 July.

By September 2020, it had become clear that the UK was at the start of a second wave, and social-distancing measures were intensified. Continued increases in infection numbers led to Wales implementing a two-week national lockdown from 19 October, England announcing a full month-long lockdown from 5 November, and Scotland introducing a new five-level system of coronavirus restrictions.

The UK lockdown ended as planned on 2 December, but the revised tiered lockdown meant that almost all of the UK faced heavy restrictions on social activities. Although all non-essential retailers were able to reopen, foodservice and hospitality businesses still face extremely challenging conditions.

The successful vaccine trials, however, show that there is a path out of the crisis, and the first UK vaccination was administered on 8 December. By 13 February, 2021, 15m vaccine doses had been administered in the UK, with the government aiming to offer a vaccine to 17m in the priority vaccination groups (five to nine) by the end of April 2021 – something that will be done alongside administering second doses for many in the first four priority vaccination groups.

Mintel’s economic assumptions are based on the Office for Budget Responsibility (OBR)’s central scenario included in its November 2020 Fiscal Sustainability Report. The scenario suggests that UK gross domestic product (GDP) will have fallen by 11.3% in 2020, recovering by 5.5% in 2021, and 6.6% in 2022. GDP is not expected to return to pre-COVID levels until the fourth quarter of 2022. The central scenario has unemployment peaking at 7.5% in Q2 2021.

The current uncertainty means that there is wide variation on the range of forecasts, however, and this is reflected in the OBR’s own scenarios. In its upside scenario, economic activity returns to pre-COVID-19 levels by Q4 2021. Its more negative scenario, by contrast, would mean that GDP does not recover until Q3 2024.

From the start of the outbreak in early 2020, we made the assumption that an effective vaccine would not be widely available until well into 2021. However, on 9 November 2020, Pfizer and BioNTech announced highly encouraging results from trials of their vaccine, followed by similarly positive results from Moderna and the Oxford/AstraZeneca trials.

Therefore, the first group of people were vaccinated on 8 December, 2020, but, as described above, the full roll-out will take many months, meaning that Mintel is still making the assumption that we will be living with COVID for some time to come.

As has been case throughout the pandemic, market conditions are changing from month to month, and we will be publishing a full overview of the impact that it has had in our COVID-19: A Year On Report, due to publish in April 2021.

This report analyses the UK commercial banking market with a focus on the mid-market and corporate banking sectors. It covers services to non-financial private sector businesses.

A commercial bank is a type of bank and financial intermediary. These banks provide saving accounts, money market accounts and current accounts while also accepting time deposits.

Commercial banks also supply foreign exchange, international banking and trade financing.

Commercial banks provide different types of loans, including secured loans, unsecured loans and mortgage loans. In its role as a financial institution, it provides a variety of services that are helpful for business and general purposes.

Commercial banks make loans to the full spectrum of borrowers, from private individuals up to major corporations and municipal, regional and national government agencies. Commercial banks, including savings banks and credit unions, finance their loan activities by lending out money gathered from the other side of the business – the funds deposited by individuals and firms.

The biggest banks in the world have grown to become complex, multi-market organisations serving a diverse group of customers. In addition to lending services, major commercial banks also offer cash management services, such as money transfers and account reconcilement, asset-based financing and equipment leasing.

Businesses are increasingly demanding more customised products at a lower price point while receiving greater levels of service. The challenges of today’s fragile economy have reduced the flow of capital in the market and require a more in-depth and vigilant approach to risk. The current industry structure may need to adjust to meet changing demands, and allow banks and lenders to deliver profitable results.

Services for small businesses are analysed in Mintel’s Small Business Banking: Inc Impact of COVID-19 – UK, November 2020 Report.

Market segmentation splits medium- and large-sized businesses. For the purposes of this Report, a medium-sized business is defined as a non-financial, private sector business with an annual turnover of between £1m and £25m. Large businesses are defined as those with turnover in excess of £25m. This is in line with the definition used by the British Bankers’ Association (BBA). The term ‘corporate banking’ is used to refer to services provided to large businesses.

This Report uses BBA data to segment the market. This data is collected from a select group of major high-street banks. It does not cover the entire market. The following is a list of the banks that the BBA includes in this group:

Santander UK Group:

Santander UK (including retail deposits of Bradford & Bingley from 2008)

Abbey National Treasury Services plc

Cater Allen

Alliance & Leicester plc (from 2008)

Barclays Group:

Barclays Bank PLC

Barclays Bank Trust Company Ltd

Bradford & Bingley plc (up to and including 2009)

Lloyds Banking Group:

Bank of Scotland (from 2009)

Lloyds TSB Bank Plc (from 2009)

AMC Bank Ltd (from 2009)

Lloyds TSB Private Banking Ltd (from 2009)

Lloyds TSB Scotland plc (from 2009)

Scottish Widows Bank plc (from 2009)

HSBC Bank Group:

HSBC Bank plc

HSBC Trust Company (UK) Ltd

Marks & Spencer Financial Services (from 2011)

Virgin Money Group:

Virgin Money

The Royal Bank of Scotland Group:

The Royal Bank of Scotland plc

Adam and Company plc

Coutts & Co

National Westminster Bank PLC

Royal Bank of Scotland NV (from 2011)

Ulster Bank Ltd

Ulster Bank Ireland Ltd

It is not possible to profile all banks offering commercial banking services in a Report of this type. This Report is not a directory of industry participants and the company profiles are a cross-sample rather than the largest industry participants.