Why are the banks not lending ?

Wales Business — By David Jones on August 24, 2010 10:33 pm

The British Bankers Association hasn’t had a good press over the past few years.

And today they presented more bad news – revealing that a pitifully small 33,000 mortgages were approved in July, down from 66,000 in July 2006.

Many people (politicians / public / mortgage-seekers) express frustration that the banks are simply avoiding loans so that they can build up their balance sheets after the massive losses from the crash.

However, if you dive into the detail of all bank lending, which includes all UK mortgages, personal loans, credit cards, overdrafts and other business loans, then the actual rate of lending can be tracked. So, by taking the average of all these (which the BBA helpfully make available at http://www.bba.org.uk/statistics/article/july-figures-for-main-high-street-banks) you get this chart of lending for the past 12 years :

So, contrary to current moaning thinking lending is merely flat, not dropping.

But as can be seen , the rate of lending growth was above 12% for much of the previous twelve years – Was that sustainable ? Clearly not.

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4 Comments

  1. John Tyler says:
    August 25, 2010 at 7:05 am

    Is it just the banks, approximately eight years ago we decided that banks selling debt much like a supermarket sells soap powder was odd, we were uncomfortable when bank sales staff called with offers of loans including the ubiquitous cash-release mortgage.

    The result, we withdrew as borrowers and became savers; so my question is …

    … has the attitude to borrowing by the general public affected the rate of lending, this attitude to debt.

    Coming out of a bubble, has history taught us to expect a retreat so that we might re-build our balances, reading the press it would seem that only the banks should be held responsible, yet the reality is we all took part in events, and we are now acting with extreme caution.

    Is this change of attitude to borrowing the reason why the Conservative – Liberal Democrat government is able to carry the public on the question of cutting public spending ?

  2. David Jones says:
    August 25, 2010 at 5:22 pm

    John – It sounds like you were in the fortunate position of being able to switch from borrower to saver.

    The data published yesterday covers 5 aspects of lending :

    - Mortgages (for houses)
    - Consumer Credit
    - Personal Loans & Overdrafts
    - Credit Cards
    - Company lending (other than to financial organisations)

    Three of these categories (Consumer Credit, Personal Loans & Overdrafts and Company lending) are negative, and have been so for over a year).

    So what that shows is the consumers are paying off debt when they can. Given the very low interest rates this is a concern, but it’s made worse because of the need to keep consumers spending to keep the economy growing – and the definition of a recession is that the economy is not growing.

    On the question of government motivation – I think you are correct in the sense that most of the public saw the recessions impact about eighteen months ago when Woolworths shed 30,000 jobs.

    Time will tell whether the reality of public service cuts will cause a government backlash – Many of my Labour Party colleagues think it will – but I am not so sure.

  3. Neil says:
    August 31, 2010 at 4:11 pm

    Why not lending? Because theyy haven’t actually got any money, which is all I can deduce having tried and failed to merge my 5 different employment-based pensions into one, only for each fund to tell me I was welcome to transfer in but that I couldn’t transfer anything out to another fund. I suspect I will not have a pension when I retire, despite having paid my dues.

    Show me the money!!!!!!!!!!!!!!!!!!

  4. Cambria Politico says:
    October 7, 2010 at 11:16 am

    The banks are lending but many businesses are not taking the poisoned chalice. You can take a horse to water but can’t make it drink. Our take on this

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