Banking alternatives plug the hole in lending

Signing contractBusiness lending has risen for the first time in six years and is forecast to grow to £66 billion (€88 billion) by 2018 according to 'big four' accountancy firm, EY.

The EY ITEM Club, a non-governmental forecasting group, says that 2014 was the lowest point for business lending post financial crisis, with the stock of loans 31% below their 2008 level.

However, alternative lending has filled the lending gap and is set to remain a real competitor for banks. Bond issuance in particular is up almost 23% since 2009 and ran at £7.5 billion per quarter in 2014, contrasting with bank lending, which averaged minus £2 billion per quarter in 2014 as companies repaid more than they borrowed.

Chris Price, UK head of financial services at EY, says: "Growth in the UK economy is now filtering into financial services, although turning that into profitable growth remains a challenge. Banks are poised to resume lending growth, and asset managers and insurers both foresee strong revenue growth.

"But, there are external threats ahead, and the odds are that the global economy can't avoid them all. Political uncertainty across Europe continues to build and risks creating a prolonged period of uncertainty and volatility."

The report also found that the retirement market is set to grow by almost £2 billion over next two years. The changes to the retirement savings market, now only two months from implementation, are one of the areas of greatest uncertainty within financial services, and will open up the once insurer-dominated market to other players. The size of the market is expected to expand as the population ages and retirees enjoy the freedom to invest in a more diverse range of saving products, in addition to annuities.

Gill Lofts, UK head of wealth and asset management at EY, says: "There remains considerable uncertainty in the pensions landscape and change will be slow. However, the shake-up of the retirement market will open the door to a raft of new and dynamic products and solutions in a market that has arguably been suffocated by restricted products for decades."

The asset management sector is forecast to continue to grow strongly, with assets under management reaching £850 billion in 2014, and forecast to hit a record £904 billion by the end of 2015. UK-focused funds are expected to almost reach £1 trillion by 2016, which will be close to two-thirds of annual UK GDP for that year.

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