UK Commercial Banking and Finance Market Report 2021
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Report Summary
“Whilst current lending trends are being driven by the government-backed support schemes, once these end, banks will turn to focus on their loan books and are likely to become more restrictive in their lending to certain areas, which will provide an opportunity for alternative lenders to further increase their presence.”
– Lewis Cone, Senior B2B Analyst
This report will cover the following areas:
- 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.
Table of Contents
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Overview
- What you need to know
- Key issues covered in this Report
- COVID-19: market context
- Economic and other assumptions
- Products covered in this Report
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Executive Summary
- COVID-19 and commercial banking and finance
- Figure 1: Expected impact of COVID-19 on commercial banking and finance, short, medium, and long term, 15 February 2021
- The market
- Commercial deposits significantly rise since the start of the pandemic
- Figure 2: UK MFI sterling deposits from UK resident businesses, Q1 2019-Q4 2020*, (£m)
- Professional, scientific and technical activities lead industries in terms of NFB deposits
- Figure 3: MFI sterling deposits of UK resident non-financial businesses, by industry type, largest six, December 2020, (£m)
- Net lending significantly rose in 2020 although large businesses repaid more than they had borrowed
- Figure 4: UK MFI net loans to non-financial businesses,Q3 2019-Q4 2020, (£m, NSA)
- Deposit growth expected until 2023 when UK business emerges into the ‘next normal’
- Figure 5: Forecast UK MFI sterling deposits from UK resident non-financial corporations, 2021-25, (£bn at 2020 prices, % annual change)
- COVID-19 and commercial banking and finance
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Issues and Insights
- Open banking usage growing among small businesses
- Government urged to extend COVID support schemes but gaps in provision remain plus the loans are unlikely to be paid back in full
- SMEs are growing frustrated with traditional business banking services
- Businesses must now adapt to the new Brexit environment as transition period ends
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The Market – Key Takeaways
- Commercial deposits significantly rise since the start of the pandemic
- Deposit growth expected until 2023 when UK business emerges into the ‘next normal’
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Commercial Banking Market
- Commercial deposits rise significantly since the start of the pandemic
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- Figure 6: UK MFI sterling deposits from UK resident businesses, January 2019-December 2020, (£m)
- Professional, scientific and technical activities lead industries in terms of NFB deposits
- Figure 7: MFI sterling deposits of UK resident non-financial businesses, by industry type, largest six, December 2020, (£m)
- SME loan applications and approvals rise significantly while 65% of loans head outside of London and the Southeast
- The 2020 BoE stress test cancelled due to the pandemic but solvency stress test will take place through 2021
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Commercial Borrowing
- Net lending significantly rose in 2020 driven by the COVID support schemes although larger businesses repaid more than they had borrowed
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- Figure 8: UK MFI net loans to non-financial businesses, by size of business, , Q4 2018-Q4 2020, (£m, not seasonally adjusted)
- Commercial lending rates fall in 2020
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- Figure 9: Average interest rate for UK MFI new advances to PNFCs, December in 2016-20, (% not seasonally adjusted)
- Credit availability and demand rise in Q4 2020
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- Figure 10: Availability of corporate credit to PNFCs in the past three months, by business size, Q4 2016-Q4 2020, (net percentage balance)
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- Figure 11: Demand for corporate credit by PNFCs in the past three months, by business size, Q4 2016-Q4 2020, (net percentage balance)
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Commercial Banking Market Forecast
- Short-, medium- and long-term impact on the industry
- Figure 12: Expected impact of COVID-19 on commercial banking and finance, short, medium, and long term, 15 February 2021
- Market drivers and assumptions
- Figure 13: Key drivers affecting Mintel’s market forecast (prepared on 15 February 2021), 2015-25, (in % annual change, annual average % rate, and £m)
- Learnings from the last recession
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- Figure 14: Industry performance following the last recession, 2008-15, (£m)
- Overview
- Deposits growth expected until 2023 when UK business emerges into the ‘next normal’
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- Figure 15: Forecast UK MFI sterling deposits from UK resident non-financial corporations, 2021-25, (£bn at 2020 prices, % annual change)
- Stricter Prompt Payment Code will usher in quicker payments era
- Short-, medium- and long-term impact on the industry
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The Impact of the Economy
- UK economy contracts by record 9.9% in 2020 due to COVID-enforced economic shutdowns
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- Figure 16: Annual GDP growth rate, 2016-20*, (% annual change)
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Market Trends
- Online banking remains most commonly used method to carry out banking activities
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- Figure 17: Channel preference in small-business banking, by activity, July 2020, (% of respondents)
- Younger businesses most common users of mobile banking while older businesses most common users of online banking
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- Figure 18: Use of online and mobile banking services when carrying out business activities, by age of business, July 2020, (% of respondents)
- A slight fall in the number of current-account switches but vast opportunities remain
- Business confidence falls to almost decade-low level in Q4 2020 with many just hoping to survive the pandemic
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- Figure 19: Business Confidence Index, per half-year, Q2 2010-Q4 2020, (index figure)
- Write-offs on loans to PNFCs rise again in 2019 but likely to fall in 2020
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- Figure 20: Write-offs of loans to PNFCs from banks and building societies, 2015-20*, (£m, NSA)
- Almost half of SMEs have changed their business savings habits due to COVID-19
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Market Drivers
- Brexit is complete and companies must now adapt to the new operating environment despite a trade deal having been agreed
- Large corporates account for 48% of all private sector turnover
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- Figure 21: Business population in the UK, private sector, by company size, 2016-20, (number, £bn and millions employed)
- Private sector profitability falls while investment levels expected to remain robust
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- Figure 22: UK PNFCs’ average net rate of return, 2016-20*, (%)
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- Figure 23: UK total business investment, 2015-19, (chained volume measures and not seasonally adjusted, £bn and % annual change)
- Company insolvencies significantly fall in 2020, but a rise is expected after the removal of government support schemes
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- Figure 24: Company insolvencies in England and Wales, 2016-20, (number)
- M&A deals marginally fall in 2019, but remain high in comparison to pre-2018
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- Figure 25: Mergers and acquisitions of UK companies, 2015-19, (units)
- A third of small businesses’ finances are ‘tight’ or ‘struggling/in trouble’, with many expecting to have to borrow to survive
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- Figure 26: Current finance situation of the business, June 2018 vs June 2019 vs June 2020, (% of respondents)
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Companies and Brands – Key Takeaways
- Pandemic has curtailed challenger banks, but they remain poised to target gaps in services provided by the big banks
- Lloyds and Demica partner on supply-chain finance platform
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Industry Structure
- Industry response to COVID-19
- The COVID-19 response
- Support for SMEs
- Coronavirus Business Interruption Loan Scheme
- Bounce Back Loan Scheme
- Future Fund Scheme
- Support for corporates
- Industry development
- Pandemic has curtailed challenger banks but they remain poised to target gaps in services provided by the big banks
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- Figure 27: Market share for business bank accounts, July 2020, (%)
- Handelsbanken provides best overall service quality to SMEs while Barclays provides best online and mobile services
- The number of banks and building societies hits seven-year low in 2020
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- Figure 28: Number of banks and building societies operating in the UK, 2016-20, (number)
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Competitive Strategies
- HSBC sets out new branch network plan
- Revolut Business expands service by accepting online payments
- Neo launches multi-currency SME bank account
- Lloyds and Demica partner on supply-chain finance platform
- American Express and Amazon launch co-branded credit cards for UK SMEs
- Virgin Money launches free package to help businesses streamline their finances and partners with a fintech to boost its business banking credentials
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Company Profiles
- Aldermore Bank
- Recent company activity
- Financial information
- Figure 29: Financial analysis of Aldermore Bank plc, 2015-20*, (£m)
- Barclays Bank PLC
- Recent company activity
- Financial information
- Figure 30: Financial analysis of Barclays PLC, 2015-19, (£m)
- Co-operative Bank
- Recent company activity
- Financial information
- Figure 31: Financial analysis of Co-operative Bank plc, 2015-19, (£m)
- HSBC Bank plc
- Recent company activity
- Financial information
- Figure 32: Financial analysis of HSBC Bank, 2015-19, (£m)
- Lloyds Banking Group
- Recent company activity
- Financial information
- Figure 33: Financial analysis of Lloyds Banking Group, 2015-19, (£m)
- NatWest Group plc (formerly known as RBS Group plc)
- Recent company activity
- Financial information
- Figure 34: Financial analysis of NatWest Group (formerly known as Royal Bank of Scotland Group), 2015-19, (£m)
- Santander UK plc
- Recent company activity
- Financial information
- Figure 35: Financial analysis of Santander UK plc, 2015-19, (£m)
- Virgin Money UK (formerly known as Clydesdale Bank plc)
- Recent company activity
- Financial information
- Figure 36: Financial analysis of Virgin Money UK plc, 2018-20, (£m)
- Figure 37: Financial analysis of Clydesdale Bank plc, 2016-20, (£m)
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Appendix – Data Sources, Abbreviations and Supporting Information
- Abbreviations
- Methodology
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Further Sources and Contacts
- Trade associations
- Trade magazines
- Trade exhibitions
About the report
This market report provides in-depth analysis and insight supported by a range of data. At the same time, introductory and top-level content is provided to give you an overview of the issues covered.
Market
Mintel provides a range of market information, frequently through the category level, including market size and forecasting, complete with market drivers that illustrate the forces that shape a category or market.
Consumer
Mintel’s proprietary consumer research provides our analysts with the attitudinal and behavioral data used to provide valuable insight to topical issues.
Brand/Company
Mintel provides overviews of the top brands and manufacturers, and uses consumer research to explore attitudes and reactions to brands, as well as insight into what will resonate with consumers.
Data
Market reports provide appendices of data to support the research and insight produced. Our databooks* are easily manipulated and downloadable to support your research needs and covers factors from consumer attitudes to market forecasts.
*databooks not available with UK B2B Industry reports.
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