Gross lending to UK-based small and medium-sized enterprises (SMEs) by the main High Street banks declined 18% year-on-year in 2022 to £18.4bn, according to data from UK Finance, a trade association for the UK banking and financial services sector.
While the UK economy expanded by 4% in 2022, the last two quarters of the year were stagnant. Indeed, three-fifths of total lending in the year took place in the first six months, while there has been a gradually increasing demand for working capital, such as overdrafts.
SMEs have also started to draw on deposits accumulated throughout the pandemic, tapping into both sight and time deposits. Finally, repayments continued to be elevated as businesses pay off the government-backed loans taken out during the pandemic.
The decline in SME lending was a consequence of rising economic uncertainty, but also reflected increased competition from specialist and challenger banks accounting for an increasing share of lending.
Challenger and specialist banks are operating where the biggest banks are not, and in many cases are more willing than the major banks to lend to companies in sectors severely affected by the pandemic, according to British Business Bank, a state-owned economic development bank.
