Lending to customers by challenger banks reached record high last year, study finds
Lending to customers by UK challenger banks has more than doubled in the last five years to a record high of £115bn.
A number of challenger banks were set up in the wake of the credit crunch to fill the gap left in the market by high street banks.
However research by advisory firm BDO found that lending slowed down last year with an increase of just three per cent, the slowest annual growth rate since 2012/13.
The firm says that the slowdown could be the result of the UK’s economic and Brexit-related uncertainty as well as banks moderating their risk appetite.
Leigh Treacy, head of financial services advisory at BDO, said: “Considering the huge challenges and costs of setting up a bank from scratch, challenger banks have done a great job. They have exceeded the expectations of many commentators, and delivered lending to borrowers who were hit hard by the credit crunch.
“However, Brexit uncertainty and the economic slowdown seems to be causing some of these banks to temporarily slow down their lending growth.”
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Challenger banks have argued that their use of disruptive technology in digital banking has helped them to acquire new customers. Treacy said: “Some of UK’s traditional banks have been slow to catch up.”
The advisory firm adds that the importance of challengers maintaining strong stress testing policies has intensified as regulators step up their scrutiny of reporting controls.
The Prudential Regulation Authority recently wrote to the chief executives of challenger banks urging them to maintain high standards of loan underwriting to reduce the impact of a potential market downturn.
“The FCA and PRA have made it clear that they expect fast growing firms to implement their recommendations immediately. Tightening underwriting controls could help them shield themselves from economic change,” Treacy adds.