Business lending continues to slump as firms reduce debts

 
Ben Southwood
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BUSINESS borrowing slid further in September, data revealed yesterday, but mortgage lending increased slightly.

Net business lending contracted £1bn between September and August, the British Bankers’ Association said, after falling £1.7bn on average in the previous six months.

This continued fall in the stock of loans came from the demand side, the industry body said, with firms “seek[ing] to reduce debt while waiting for better or more certain trading conditions.”

It also said that although it was too early to notice any impact from the Funding for Lending scheme so far, the scheme would loosen tight lending conditions “over time”.

Mortgage lending bounced back into positive territory in September, with net lending of £0.3bn over the month, after last month’s equal fall.

This rise came from 62,974 mortgage approvals, together worth around £8.1bn, the BBA’s data showed.

But analysts said this modest rise did not signal overall strength in the market. “The mortgage market was weak in September,” said Esurv boss Richard Sexton. “Gross lending volumes are low, and net lending has been anaemic over the long-term.

“The market is being starved of funds by tough capital adequacy requirements and a meagre diet of credit from the money markets,” Sexton claimed.

LSL boss David Newnes agreed that bank conservatism was a major reason for tight lending conditions in the mortgage market.

“Banks have been waiting for economic conditions to improve before boosting lending, prioritising balancing their books in the meantime,” Newnes said.

These goals were boosted on both sides of the balance sheet, the data showed, as banks enjoyed a £2.3bn increase in personal deposits over September.