Lending by UK challenger banks reaches £115bn
Lending to customers by UK challenger banks has more than doubled in the past five years to £115bn according to accountancy and business advisory firm BDO LLP.
Whilst lending to customers increased in each of the past seven years, some challenger banks have reportedly reduced their risk appetites and slowed the growth of their loan books.
Lending by challenger banks rose by 3% last year, the slowest annual growth rate since 2012.
BDO says that this slowdown in lending could be the result of the UK’s economic and Brexit-related uncertainty and also banks considering their risk appetites under current market conditions.
Leigh Treacy, head of financial services advisory at BDO, said: “Considering the huge challenges and costs of setting up a bank from scratch, challenger banks have done a great job.
“They have exceeded the expectations of many commentators, and delivered lending to borrowers who were hit hard by the credit crunch.
“However, Brexit uncertainty and the economic slowdown seems to be causing some of these banks to temporarily slow down their lending growth.”
Challenger banks have argued that that the benefits of their approach include not being affected by the mis-selling scandals that affected many of the UK’s high street banks and building IT systems that are not reliant on using “cumbersome legacy technology”.
Treacy adds: “Challenger banks’ use of disruptive technology in digital banking services and improving customer service has helped them quickly acquire new customers.
“Some of the UK’s traditional banks have been slow to catch up.
“Many SMEs struggled to secure funding after the credit crunch as larger banks reduced their exposure to riskier loans. Individuals with near prime credit ratings also struggled to secure mortgages.
“However, challenger banks have stepped in over the last decade and proven to be a critical source of funding for many entrepreneurs.
“They have also supported many customers by offering easier access to mortgages to help finance home purchases.”
This comes as the PRA recently wrote to all chief executives at challenger banks urging them to maintain high standards of loan underwriting to reduce the impact of a potential market downturn.
Leigh Treacy adds: “The FCA and the PRA have made it clear that they expect fast growing firms to implement their recommendations immediately.
“Tightening underwriting controls could help them shield themselves from economic change.”