Overall credit availability to the corporate sector increased for the second consecutive quarter in Q1 2013 but the increase was confined to large companies.
This was the finding of the latest Bank of England Credit Conditions survey which asked lenders to report developments in the corporate sector overall split by large and medium-sized private non-financial corporations and small businesses.
The survey found the availability of credit to small and medium-sized firms was little changed in the first quarter.
Lenders cited a variety of factors as having had a small impact on the rise in general credit availability, including a changing economic outlook, market share objectives, a changing appetite for risk and more competition from capital markets.
They expect overall credit availability to the corporate sector to be little changed in the forthcoming quarter, although availability to large companies is expected to increase further.
Credit availability to the commercial real estate sector was reported to be little changed in the first quarter and is expected to remain so over the coming quarter. The impact of commercial property prices, which had been pushing down on credit availability in the previous four surveys, was reported to have been broadly unchanged in 2013 Q1.
Some lenders commented that the regulatory capital impact of moving to a ‘slotting’ approach was having an impact on their appetite for commercial real estate lending, but other lenders reported that it was not having a material effect.
Lenders reported that spreads on lending to small businesses had tightened in 2013 Q1 although fees and commissions were reported to have risen slightly. It is the first time that tighter spreads for small businesses have been reported since the question was first asked in 2009 Q4.
The Q1 Federation of Small Businesses’ Voice of Small Business Index also suggested that the cost of credit for small businesses had fallen recently.
Spreads on lending to large and medium-sized companies tightened significantly for the second consecutive quarter. Fees and commissions were reported to have fallen slightly for medium-sized companies and little changed for large companies in 2013 Q1.
Some lenders commented that the reduction in spreads reflected an increase in competition and the impact of the Funding for Lending Scheme.
Lenders reported a significant decrease in demand for credit from small companies in Q1, a slight reduction in credit demand from medium-sized companies and little change in demand from large companies. Lower capital investment was cited as the main reason contributing to lower demand overall.
Lenders commented that confidence in the economic outlook remained fragile, and that was weighing on demand. A few lenders noted that some companies might have been discouraged from applying for credit because of a belief that lenders have a low appetite for risk.
Credit demand is expected to increase across all firm sizes in Q2, with significant increases expected for small and large companies.
Loan performance improved in 2013 Q1, with the default rate on loans reported to have fallen for large and medium-sized companies and to have fallen significantly for small businesses. Losses given default were also reported to have fallen for small businesses, and to have fallen slightly for medium-sized companies.