New postcode lending data reveals Britain’s strikingly healthy SME sector
HOW are businesses in your area doing? Are they building up cash piles, or piling up the debts? Until this week, regional borrowing and saving by small and medium-sized enterprises (SMEs) was a mystery. But thanks to data released from banks for 120 postcode areas, we now know what is happening in each part of the country.
Across Britain, SMEs are building up savings and paying down debt – the whole sector has become a massive net depositor, with more savings than borrowing. The new figures show this process is happening almost everywhere – in 95 per cent of the postcode areas, businesses had more cash on deposit in 2012 than they did in 2011. In over 70 per cent of postcode areas, SMEs have more in the bank than they owe overall.
But the new postcode data does show big regional variations. The most cash-rich SMEs in the country are in London, where they have net deposits of £13.4bn, whereas in Wales they have net debts of £1.2bn. Businesses in West Central London have on average net deposits of £121,000 (the highest in the country), whereas in Llandrindod Wells in Wales, SMEs have on average net borrowing of £20,000 (the highest net debts in the UK).
In most areas, net lending fell between 2011 and 2012, but it generally fell fastest in those areas with the highest net deposits. There is a simple reason for this: when SMEs build up deposits, they are less likely to take out a loan. This is a healthy position to be in, and means the outlook for the economy is a good one. Cash reserves mean that, as small businesses regain confidence, they will be able to draw on a large pool of money to invest in the future.
Nationally, there is over £100bn of borrowing by SMEs, but the data makes it clear that those areas that need it most are getting the most funding. For example, the South West accounts for 5 per cent of SME economic activity, yet receives 11 per cent of SME lending. Wales accounts for 2 per cent of economic activity and receives 5 per cent of lending. Indeed, all regions outside of London, the East of England, and the South East are receiving more bank finance than the relative economic activity of their SME sector would suggest.
The banks have published this data to improve transparency and access to finance. As well as helping the government identify problem areas in which they could target additional resources, it should promote competition. Banks and regional lenders, like Community Development Finance Institutions, can focus on areas where there is space for new lending.
But the industry isn’t stopping there. Building on the current 120 postcode areas, the banks have agreed that, from next year, they will publish quarterly data for thousands of postcode areas – so you can find out what is happening in the community around you. This data will not only show lending to SMEs, but also mortgages and personal borrowing – making the UK banking industry almost certainly the most transparent in the world. That really is something to be proud of.
Anthony Browne is chief executive of the British Bankers’ Association.