Bank of England has started to release a new report- Trends in lending. The report would be a monthly feature giving an analysis of bank lending trends in UK. The report is divided into three types of credit- to business, mortgage and consumer. It then looks at amount and interest rates in each type of credit.
The first report findings:
- Growth in the stock of lending to UK businesses slowed markedly during 2008 but looking ahead, some lenders expect the overall availability of credit to the corporate sector to increase over the next three months.
- Growth in the stock of mortgage lending to individuals has slowed sharply since the start of the financial crisis as credit availability declined. Lenders expect the demand for secured credit to remain weak in coming months.
- The availability of unsecured credit has tightened over the past year and weak demand for unsecured lending is expected to continue over the coming months.
It also looks at whether lack of demand or lack of supply are influencing credit conditions. It is pretty difficult to say in each of the three categories. At best, both seem to be at work. However, it does provide some basis for analysing this:
A key issue for policymakers when assessing how best to support the flow of credit to the wider economy is the extent to which the observed weakening in lending reflects a reduction in
supply , such as a tightening in banks’ credit provision, or weaker demand for funds from businesses and households as the UK economy entered recession. Assessing the balance of these factors requires an assessment both of lending quantities and of loan pricing adjusted for risk. If the lending slowdown is predominantly driven by weaker demand then, other things equal, we would expect spreads charged on lending to fall. By contrast, if a tightening of supply is more important, spreads would be expected to rise. On these grounds in initial phase of crisis, in UK it seems to be more of a supply issue (as rates were high) and now more of a demand issue (as rates have declined but credit has not really picked up). But then again it is very difficult to entangle the two clearly. We can just take a relative picture.
I recently pointed to an analysis on US Bank lending trends which said small banks have raised lending.
I also updated Indian Bank lending trends which says though interest rates have lowered but credit has declined. So, in India also we see a similar picture as seen in UK. The credit flow has declined in Jan-Apr compared to Oct-Dec. However, rates have declined (though not as much as RBI policy rates) esp in Public Sector banks. So, the decline is likely to be more demand driven than supply driven.
This is a great initiative by BoE and it will be great if most Central Banks release similar reports on a monthly basis. This would provide a lot of clarity to state of lending in their respective economies. As non-banking sources of finance have collapsed everywhere, banks are the key. RBI does release a lot of data on a regular basis on banks (so must be other central banks which are bank regulators) but such reports are always useful. It will provide the trends in one snapshot.