BY Richard Summerfield
Consumer and business lending by the UK’s largest banks has fallen by $595bn over the last five years, according to a new report from KPMG.
Total lending at Barclays, Royal Bank of Scotland, HSBC, Lloyds and Standard Chartered dropped 14 percent to £2.33 trillion in the first half of 2014, compared with five years earlier. The dramatic decline in lending is the result of the enormous fines and compensation packages which banks have had to accept in order to make amends for their recent chequered past. Since 2011, remediation payments made by the big six British banks have totalled £31bn, although the year on year remediation figure in H1 2014 was down 44 percent to £2.4bn.
The overall reduction in lending since 2009 is also a result of a new risk-averse mentality permeating the big UK banks. KPMG believes that major banking groups in the UK have lost sight of the risk-taking required in the sector. That said, it appears that a number of banks are beginning to take steps which will help the sector return to sustainable growth. Profits have begun to recover , thanks to a new tone at the top. The big six banks reported a combined profit of £15.2bn in H1 2014, continuing the return to profitability first recorded in the second half of 2013.
However, KPMG also notes that the UK’s wider banking sector is approaching “crunch time” due to the rise of pay day lenders and other shadow banking groups. Bill Michael, EMA head of financial services at KPMG, noted that “Shadow banking initiatives are increasingly penetrating under-served areas of the market. These initiatives are creating a challenging environment that traditional banks are unfamiliar with. Equally, if banks get to grip with technology quickly, there is a unique opportunity for banks to capitalise upon. While competitors entering the market do not have the same legacy-based obstacles preventing them from pursing new opportunities, banks can offer the scale, reach and experience many players cannot.”
