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UK Challenger Banks Hit New Lending Record in 2020

Michael Behr

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UK challenger banks
Government-backed scheme helped challenger banks increase their lending to businesses, driving the increase.

UK challenger banks lent a record total of £143 billion last year, marking an increase of £14 billion.

According to research from accountancy and business advisory firm BDO, five years ago challenger banks lent less than half the current figures, around £71 billion. In addition, it tops off a decade of sustained growth for challenger banks.

Business lending in particularly saw a major rise, growing 26% in the past year from £12.2 billion to £15.5 billion. This accounted for 11% of challenger banks’ total loan books, compared to 9.5% in the previous year.

BDO claimed that initiatives like the Coronavirus Business Interruption Scheme (CBILS) and Bounce Back Loan Scheme (BBLS) had helped boost challenger bank’s loans to businesses.

In addition, the stamp duty holiday helped increase residential mortgage lending, again increasing the volume of loans.

BDO Head of Financial Services Advisory Leigh Treacy 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.”

She added: “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.”


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The coronavirus pandemic has been a mixed bag for financial institutions. On the one hand, lockdowns saw depressed economic activity, mortgage holidays and smaller credit payments.

On the other, Bank of England stats showed that net bank borrowing by SMEs increased, reaching a record £43.3 billion in 2020. Furthermore, demand for home loans has grown along with property prices, driven by the stamp duty holiday, low interest rates and new housing demands caused by the pandemic.

UK challenger banks like Monzo and Starling Bank have had a major effect on the country’s financial industry.

A recent survey found that new and challenger banks topped a survey of customer satisfaction. Monzo and Starling topped the over quality of service rankings, with over 80% recommendation rates.

The newcomers have managed to create evangelical followings among young, tech-savvy, affluent customers. With their operations primarily online, they have been able to better weather the coronavirus pandemic. Without physical premises, they avoided a major expense that hampered their older rivals as shops were shuttered, and they were well position to take advantage of the increase in online shopping.


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Michael Behr

Senior Staff Writer

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