U.S. Bank Business Lending Slow to Recover

Bank lending to the private sector in the US is just 14% higher in the last year than it was before the financial crisis – compared to a global average of 24% - hampering the return to economic growth, reveals a new study by UHY, the international accounting and consultancy network.

According to UHY, in 2016 a total of USD 9.6 trillion was lent to businesses in the US – down from USD 8.4 trillion in 2008.

By contrast, on average across all the 24 countries studied around the world, private sector bank lending increased by 24% over the same period in absolute terms.

European economies generally are among the worst affected. Private sector bank lending was on average 25% lower last year than pre-credit crunch across the European countries studied, with a total of USD 12.2 trillion lent to those businesses in 2016 – down from USD 16.3 trillion in 2008.

UHY says that countries like Spain and Ireland which were hardest hit by the banking crisis are seeing the slowest recovery in private sector credit.

Bank lending to the private sector in Ireland is 69% below 2008 levels (USD 148 billion in 2016, down from USD 475 billion), while in Spain, it is 51% lower (USD 1.3 trillion down from USD 2.7 trillion).

Even in Germany, widely seen as the economic powerhouse of Europe, there was a 21% decrease, falling to USD 2.6 trillion last year from USD 3.3 trillion in 2008.

Eric Hananel, of UHY’s US member firm UHY Advisors, comments: “Almost a decade on from the global financial crisis, many US small and medium-sized businesses are still suffering from a shortage of credit.”

“As regulators have forced banks to shore up their balance sheets and reduce risk, many SMEs have found their access to lending severely curtailed. While some larger companies may have been able to get around this by accessing the bond market, smaller businesses are unlikely to have that option.”

“Without the capital expenditure they need to fund investment, businesses will struggle to capitalise on growth opportunities or drive innovation, ultimately risking losing ground to global competitors.”

“The US Government is increasingly looking to boost lending. As an incentive to accelerate business growth, as well as incrementally increase the amount of business borrowing, current efforts are underway to adjust the Foreign Tax Scheme to allow for the repatriation of foreign cash balances back to the US.”

G7 economies lag well behind BRICs

UHY adds that the G7 group of leading world economies is also lagging behind – while BRICs economies power ahead. On average, the G7 saw a 1% decrease in real terms over the period, whereas BRICs (Brazil, Russia, India, China) enjoyed an average increase of 209%.

China topped the UHY table, with bank lending to the private sector jumping 270% between 2008 and 2016.

Eric Hananel says, “It’s debateable whether the appetite to lend to BRICs and other emerging economies is sustainable, as debt levels increase while economic growth slows in countries like China. Scrutiny of companies’ ability to service their borrowing will be increasingly intense.”

“What’s more, if interest rates - particularly in the US - were to rise that could put the brakes on lending to both developed and emerging economies, as companies think twice about taking on more expensive borrowing.”

Amount of Bank lending to the private sector in USD

 

Country

Bank lending to the private sector 2008 (USD billions)

Bank lending to the private sector 2016 (USD billions)

% Change from 2008-2016

China

$4,570

$16,890

270.0%

BRIC

$6,460

$19,940

208.9%

India

$590

$1,100

97.7%

Brazil

$690

$1,180

71.1%

Malaysia

$240

$390

65.0%

Argentina

$40

$60

54.9%

Canada

$70

$1,710

45.5%

Mexico

$120

$180

44.8%

Israel

$140

$200

43.6%

Australia

$1,250

$1,790

42.5%

New Zealand

$200

$270

37.6%

World

$39,520

$51,360

23.9%

Poland

$220

$250

14.8%

Russia

$610

$700

14.6%

US

$8,380

$9,560

14.0%

Japan

$5,240

$5,240

0.2%

G7

$25,540

$25,280

-1.0%

France

$2,570

$2,300

-10.6%

Belgium

$340

$290

-14.0%

Netherlands

$1,060

$860

-19.2%

UK

$2,870

$2,290

-20.3%

Italy

$1,970

$1,560

-21.0%

Germany

$3,330

$2,620

-21.4%

Denmark

$670

$520

-21.6%

Europe

$16,280

$12,220

-24.9%

Romania

$70

$50

-26.3%

Spain

$2,710

$1,340

-50.6%

Ireland

$480

$150

-68.9%

 

Bank lending to the private sector as a percentage of GDP

 

Country

% Change from 2008-2016

China

50.5%

Brazil

46.2%

Canada

45.1%

Russia

40.9%

BRIC

38.9%

Mexico

31.8%

Malaysia

30.2%

Poland

28.1%

Australia

14.7%

India

9.9%

Argentina

9.3%

France

8.8%

Japan

6.8%

Italy

4.8%

New Zealand

0.7%

Netherlands

0.2%

Belgium

-1.6%

Israel

-1.9%

World

-3.5%

Denmark

-7.5%

US

-8.8%

UK

-10.3%

Germany

-12.1%

G7

-14.6%

Europe

-16.9%

Romania

-23.7%

Spain

-32.5%

Ireland

-69.1%

 


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