Lending by UK challenger banks reached a record high of £143bn last year, up 11% on the previous year’s £128bn, according to research by accountancy and business advisory firm, BDO LLP.
Lending has doubled in the last five years, from £71bn in 2014/15 to £143bn in 2019/20.
BDO says the rise in the value of challenger banks’ loan books had been boosted by additional lending to businesses through the Coronavirus Business Interruption Scheme (CBILS) and Bounce Back Loan Scheme (BBLS).
The increase in residential mortgage lending, triggered by the stamp duty holiday, has also played a role in increasing some challenger banks’ loan books.
Lending to businesses by UK challenger banks jumps 26% in just a year
Leigh Treacy, Head of Financial Services Advisory at BDO, explains that CBILS and BBLS lending have given challenger banks an opportunity to expand further into the business lending market.
Business lending by challenger banks rose 26% in the past year, from £12.2bn to £15.5bn.
Lending to businesses made up 11% of challenger banks’ total loan book, compared to 9.5% in the previous year. While this is still a relatively small proportion of total lending, it shows intent from these banks to increase loans to businesses.
Leigh says: “The hope has been that challenger banks would add an extra element of competition to the business banking market – especially amongst SMEs.
“It appears that the Government-backed loan schemes – much of which has gone through challenger banks – has given some of them a jump-start into the business lending market.”
She adds: “More SME lending will allow challenger banks to diversify away from residential mortgage loans and other products. While some forms of SME lending can be more capital intensive for banks than residential mortgage lending, challenger banks will now be looking to build on those relationships with SME borrowers and keep them as long-term customers.”
