According to the latest data, about a half of UK banks now expect a growing number of companies that fail to pay their loans, with warnings that lending houses will not be able to recover the economy in view of a lending ‘diet’. Those businesses that need to borrow some cash or have their loans restructured will now face more severe regulations imposed by banks. Some UK lenders are preoccupied that companies related to the services sector that currently accounts for about 70% of the British economy will fail to repay their loans this year because of high unemployment level and weak pay rises. As reports show, construction firms along with car part makers and tradesmen are now also at risk.
Getting Protected Against Euro-Crisis
The latest survey based on 500 bankers, held by Ernst & Young accountancy firm revealed that the banks’ tougher regulations mean they need more money in order to get insured against other economic breakdowns and the European debt crisis. Another survey published by Edinburgh investment bank Quayle Munro showed that 38 % of Scottish firms consider that their borrowing regulations will get worse during this year. These reports appeared right two weeks after the Bank of England claimed that the five leading British banks had failed to hit the ‘Project Merlin’ target focused on small and medium-sized business owners. As mentioned the Ernst and Young’s chief for banking and capital markets, Marcel Van Loo, the European and British banks have to implement a rather conservative approach. To his mind, keeping a diet was a forced measure. On the one hand, banks are now being asked to keep more capital, however they also deal with long-lasting macro-economic instability that seriously hits their loan books. Thus, banks are currently unable to trigger the process of recovery.
Companies With Debts Will Need To Tighten Their Belts
The director of Ernst & Young’s global banking and capital markets, Steven Lewis, added that many companies in need of refinancing were going to face serious difficulties this year, because the new valuation adjustments cause problems to loan-to-value ratios. Having faced with raised funding costs and increasing defaults, banks are now left with restricted room for manoeuvre. This is what pushes them to imposing tougher refinancing terms on their consumers.