Banks to rebalance towards SMEs
SMEs are still looking to banks as their primary source of funding, according to Ernst & Young’s (E&Y) ITEM Club.
However, the respected economic forecaster is predicting subdued growth in business lending in 2014, at just 1.5%, as larger firms increasingly turn to other sources of finance to drive investment.
Businesses are expanding investment but growing profits and existing large cash balances mean they can make more use of other means of funding, such as bond issues and retained earnings, to finance investment.
Omar Ali, UK head of banking and capital markets for EY, comments: “There’s no denying that some of the banks’ traditional core market is looking to alternative sources of finance.”
However, Mr Ali points out that SMEs are still looking to banks as their primary source of funding and suggests that given the pressure on banks’ traditional lending client base, they may look to rebalance more towards SMEs.