Credit crunch hits British corporates

WORSENING wholesale funding conditions are having the biggest impact on credit conditions for British companies since the end of 2007, according to the Bank of England’s latest survey of the UK credit landscape.

The Bank said that the vast majority of non-financial corporates surveyed blamed tighter wholesale funding conditions for a deterioration in credit availability in the last three months.

The data showed a net balance of 42.6 per cent of those asked in the fourth quarter of 2011 said the state of wholesale markets has had a negative impact -- a huge upswing from a net balance of 19 per cent that said so during the previous quarter.

An even larger balance of respondents – 49.4 per cent – expect wholesale markets to cause credit conditions to worsen even further over the next three months.

The Bank said: “The...survey showed the largest net balance of respondents reporting a negative impact of wholesale funding conditions on credit availability since 2007.”

The data show that the squeeze on bank funding has worked its way through to affect conditions for large companies and is undermining their confidence at an accelerating pace.

In a sign of the growing impact of the European collateral crunch, a vast balance of 62.7 per cent also anticipate a worsening of credit conditions due to lenders’ need to feed cash into issuances of asset-backed debt and money market funds. Banks have had increasing difficult selling unsecured debt over recent months.

But the scale of the crunch has yet to feed through to smaller companies. While a balance of four per cent of the smallest firms reported a worsening of conditions, most medium-sized businesses – at a positive balance of almost 10 per cent – said that credit availability had improved.

Lenders reported that default rates have slowed among their clients, although the bankruptcies that do occur are getting more expensive.

“Admittedly, [lenders] still expected to increase the availability of credit slightly,” said Capital Economics. “But even if this is the case, lenders reported a drop in demand for credit, which they expect to continue.”