Lending by British challenger banks surged to a record high last year driven by businesses rushing to capitalise on emergency Covid loan schemes, according to new figures published today.
Research by accountancy firm BDO shows challenger bank lending climbed 11 per cent over the last year to £143bn, a record high, up from £128bn in the previous year.
Challenger banks’ balance sheets have swelled as a result of their role in extending emergency credit to firms struggling to cope with the financial damage inflicted on them by the Covid crisis.
Lending to businesses rose 26 per cent in just a year, according to BDO’s research.
Banks included in the research include Monzo, Virgin Money and Aldermore. Virgin Money had the highest aggregate lending figure out of all challenger banks last year.
The government introduced several government-backed loan schemes – including the Coronavirus Business Interruption Scheme and the Bounce Back Loan Scheme – to increase the supply of credit to ailing businesses.
These schemes gave challenger banks more opportunities to expand into the lending market, BDO said.
Leigh Tracey, head of financial services advisory at BDO, said: “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.”
Lending to businesses represented 11 per cent of challenger banks’ total loan book last year, up from 9.5 per cent in the previous year.
“More SME lending will allow challenger banks to diversify away from residential mortgage loans and other products,” Tracey added.
“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.”
A challenger bank is a relatively small retail bank set up with the intention of competing for business with large, long-established national banks, such as Barclays, Lloyds and NatWest.