Commercial Borrowing - UK - December 2016

EXECUTIVE SUMMARY
Market size
Figure 1: UK MFIs’ net loans to non-financial businesses, Q4 2014 - Q3 2016, by size of business
Figure 2: UK MFIs’ cumulative net lending to UK non-financial businesses, 2014-15, by industrial sector
Market trends
Market factors
Brexit creates opportunities for business banking providers to deepen customer relationships
Commercial property transactions continue to rise
Profitability and business investment in the private sector rose in 2015 but may stagnate in 2016
Reports of falling business confidence at odds with rise in M&A activity
Industry structure
Forecast
Gross lending expected to remain stable to 2021
Figure 3: Forecast UK MFIs’ net loans ro non-financial businesses, 2017-21
Alternative market expected to nearly double its lending by 2021
Figure 4: Forecast UK alternative lending market, by funding type, 2017-21
Total value of outstanding debt set to rise alongside short-term market uncertainty
What we think
KEY INSIGHTS
How has the UK’s vote to leave the EU already impacted the market?
How did challenger banks perform in 2015? Have mainstream banks reacted in any way?
What does the future hold for commercial borrowing?
INTRODUCTION
Definitions
Methodology
Abbreviations
Market positioning
UK ECONOMY  
Key points
Overview
Figure 5: UK GDP, 2006-16
Figure 6: UK output, by industry, 2008-16
Figure 7: Quarters after GDP peak, 1979, 1990 and 2008
Inflation
Interest rates
House prices
Figure 8: UK house price changes, 2006-16
Consumer spending
Manufacturing
Figure 9: UK manufacturing, 2014-16
Business investment
Figure 10: UK GFCF 2005-15
Imports
Exports
MARKET FACTORS
Key points
Uncertainties surrounding economic growth yet to be realised
Figure 11: GDP growth rate, Q1 2012- Q3 2016
Figure 12: GDP growth rate, Q1 2012 - Q3 2016
Brexit creates opportunities for business banking providers to deepen customer relationships
Recent market changes have provided extra barrier to providing finance to SMEs
Figure 13: Company insolvencies in England and Wales, 2011-15
Commercial property transactions continue to rise
Figure 14: Number of non-residential property transactions, 2011-15
Figure 15: Number of non-residential property transactions, 2011-15
Profitability and business investment in the private sector rose in 2015 but may stagnate in 2016
Figure 16: UK PNFCs net rate of return, Q2 2011 - Q2 2016
Figure 17: UK total business investment, 2011-16*
Figure 18: UK total business investment, 2011-16*
Reports of falling business confidence at odds with rise in M&A activity
Figure 19: Mergers and acquisitions of UK companies, 2011-2016*
Government schemes
British Business Bank
Business Finance Support Finder
Enterprise Finance Guarantee
Figure 20: EFG lending, by number and value of loans offered and by number and value of loans drawn, 2009-15*
The National Loan Guarantee Scheme
Funding for Lending Scheme
BoE Stress Test
MARKET SIZE
Key points
Net lending on a pathway to recovery...
Figure 21: UK MFIs’ net loans to non-financial businesses, Q4 2014 - Q3 2016, by size of business
Figure 22: UK MFIs’ net loans to non-financial businesses, Q4 2014 - Q3 2016, by size of business
... although outstanding loan amounts are on an upwards course over 2016
Figure 23: UK total loan amounts outstanding to MFIs from non-financial businesses, November 2014 - October 2016, by size of business
Figure 24: M4 loan amounts outstanding from PNFCs, November 2014 - October 2016
Figure 25: M4 loan amounts outstanding from PNFCs, November 2014 - October 2016
Market segmentation
Figure 26: UK MFIs’ cumulative net lending to UK non-financial businesses, 2014-15, by industrial sector
Figure 27: UK MFIs’ cumulative net lending to UK non-financial businesses, 2014-15, by industrial sector
Further segmentation
Alternative finance
Peer-to-peer lending and crowdfunding
Funding Circle continues to lead P2P business lending
Figure 28: P2P business lending volume and market share, by lender, 2016*
Figure 29: P2P business lending volume, by lender, 2016*
Manufacturing industries and professional services apply for most P2P business loans
Figure 30: P2P business borrowers, by industrial sector, 2014
Crowdcube leads crowdfunding market, albeit with only four major competitors
Figure 31: Crowdfunding volume and market share, by lender, 2016*
Figure 32: Crowdfunding lending volume, by lender, 2016*
Bridging finance
Figure 33: UK bridging loans market value, in aggregated loan balances, 2012-16
Commercial property (real estate) finance
Upward pressure on yields due to uncertainty
Debt rises for first time since 2008
Figure 34: Aggregated value of outstanding debt in loan books secured on UK commercial property, 2011-15
Figure 35: Aggregated volume of outstanding debt in loan book secured on UK commercial property, 2011-15
Loan originations continue to rise, but uncertainties could derail momentum
Figure 36: Gross value of annual loan originations, 2011-15
UK banks and building societies’ share of new loan originations declines
Figure 37: Gross value of loan originations, by allocation, 2011-15
Figure 38: Value of outstanding loan books secured on UK commercial property, 2015, by type of lender
Offices and retail property still dominate the share of loans allocated, but the industrial and hotel sectors are strengthening their market share
Figure 39: Allocation of outstanding loans to investment and owner-occupied property, by type of use, 2014
Loans secured against ‘alternative’ real estate overtakes traditional real estate for the first time
SME Finance
SME funding gap
Improvements made to alternative finance accessibility
London and the south east account for a third of SME lending in Britain
Figure 40: SME turnover and lending, by region, December 2015
Figure 41: SME lending, by region, December 2015
SMEs most in need of finance for cash flow and capital equipment
Figure 42: SME lending, by reason, 2015
Value of SME loan balances has declined since 2013
Figure 43: Value of SME loan balances, by region, 2012-16*
Figure 44: Value of SME loan balances, by Region, 2012-15
MARKET TRENDS
Key points
Business confidence influences borrowing demand, but latest index figures draw concern
Figure 45: Business confidence index, per half-year, 2006-16
Figure 46: Business confidence index, per half-year, 2006-16
Write offs on loans to non-financial companies continues to fall
Figure 47: Write offs of loans to PNFCs from banks and building societies, 2011-16*
Demand for credit falls in 2016 with availability stagnating
Figure 48: Availability of corporate credit to PNFCs in the last three months, Q4 2010 - Q3 2016, by business size
Figure 49: Availability of corporate credit to PNFCs in the last three months, Q4 2010 - Q3 2016, by business size
Figure 50: Demand for corporate credit by PNFCs in the last three months, Q4 2010 - Q3 2016, by business size
Figure 51: Demand for corporate credit to PNFCs in the last three months, Q4 2010 - Q3 2016, by business size
Commercial lending rates experience further decline
Figure 52: Average interest rate for UK MFI new advances to PNFCs, at October in 2012-16
Funding for Lending scheme extended once again until 2018
Figure 53: Net loans to UK SMEs from FLS participants, 2014-15
Figure 54: Net loans to UK SMEs from FLS participants, 2014-15
INDUSTRY STRUCTURE
Key points
Industry development
Challenger banks on the rise, but market obstacles likely to protect existing players
Banking license application process has been made easier, but the number of application withdrawals has risen...
... and therefore the number of banks and building societies has remained fairly constant since 2013
Figure 55: Number of banks and building societies operating in the UK, 2013-16
Figure 56: Number of banks and building societies operating in the UK, 2013-15
COMPANY PROFILES
ALDERMORE BANK  
Figure 57: Financial analysis of Aldermore Bank plc, 2011-15
Company strategy
BARCLAYS PLC
Figure 58: Financial analysis of Barclays plc, 2011-15
Company strategy
CLYDESDALE BANK PLC
Figure 59: Financial analysis of Clydesdale Bank Plc, 2012-16
Company strategy
FUNDING CIRCLE
Figure 60: Financial analysis of Funding Circle, 2011-15
Company strategy
GE CAPITAL UK
Figure 61: Financial analysis of GE Capital Bank Limited, 2011-15
Company strategy
HSBC BANK PLC
Figure 62: Financial analysis of HSBC Bank, 2011-15
Company strategy
LLOYDS BANKING GROUP
Figure 63: Financial analysis of Lloyds Banking Group, 2011-15
Company strategy
RBS GROUP
Figure 64: Financial analysis of RBS Group, 2011-15
Company strategy
SANTANDER UK
Figure 65: Financial analysis of Santander UK Plc, 2011-15
Company strategy
SHAWBROOK BANK
Figure 66: Financial analysis of Shawbrook, 2011-15
Company strategy
Figure 67: Profiled companies’ combined turnover, 2011-15
FORECAST
Key points
Traditional (mainstream) lenders
Gross lending expected to remain stable to 2021
Figure 68: Forecast UK MFIs’ net loans to non-financial businesses, 2017-21
Figure 69: Forecast UK MFIs’ net loans to non-financial businesses, 2017-21
Loan write-offs anticipated to decline to 2019 before rising thereafter
Figure 70: Write offs of loans to PNFCs from banks and building societies, 2017-21
SME finance
Alternative finance
Alternative market expected to nearly double its lending by 2021
Figure 71: Forecast UK alternative lending market, by funding type, 2017-21
Figure 72: Forecast UK alternative lending market, by funding type, 2017-21
Commercial property (real estate) finance
Lower economic growth and the low interest rate environment will impact commercial mortgage lending
Figure 73: Forecast gross value of annual loan originations, 2016-20
Figure 74: Forecast gross value of annual loan originations, 2016-20
Total value of outstanding debt set to rise alongside short-term market uncertainty
Figure 75: Forecast value of outstanding debt in loan books secured on UK commercial property, 2016-20
Figure 76: Forecast value of outstanding debt in loan books secured on UK commercial property, 2016-20
FURTHER SOURCES AND CONTACTS
Trade associations
Asset Based Finance Association
British Bankers’ Association
British Private Equity & Venture Capital Association
Finance and Leasing Association
Loan Market Association
National Association of Commercial Finance Brokers
Trade magazines
Bridging & Commercial
Commercial Property Monthly
Credit Strategy
The Banker
Trade exhibitions
Business Funding Show
NACFB Commercial Finance Expo 2017
Credit Summit 2017
The 4th Annual Institutional & Alternative Lending Conference