Manufacturers reluctant to borrow from banks
Growth and investment are at risk because manufacturers remain disengaged from the banking sector with the legacy of the financial crisis still playing a significant role in their attitudes towards external finance.
According to new research from EEF, the manufacturers’ organisation, over eight in ten manufacturers are confident of securing finance for a new business opportunity. However, while just over a third say they are more likely to use external finance than they were two years ago, two-thirds disagree. At the same time, there has been a spike in cash holding with 55% of firms surveyed saying they are now holding more cash on their balance sheets compared to pre-recession levels.
The data also show that prior to the Brexit vote manufacturers’ investment intentions were solid. Even so, over half of firms would postpone or cancel investment if they couldn’t fund it themselves. EEF says this suggests that attitudes towards bank lending have remained largely unchanged even though economic conditions had improved considerably and interest rates have been stuck at historic lows.
The research also highlights concerns about the banking sector’s liquidity and the decline in bank stock prices which could bring competition shortfalls back to the fore. The report states: “Supply-side issues, such as the absence of product diversity, minimal differences in price, little transparency and poor banking relationships have been deterring factors even for those manufacturers with an appetite for bank finance. This lack of a diversified base for finance could lead to tighter credit conditions which will be detrimental for the real economy.”