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Bank of England - Recent Lending Trends - Research Paper Example

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This paper "Bank Of England: Recent Lending Trends" focuses on the most important financial institution of the UK. It is responsible for regulating the financial conduct of the country. It does that by devising a fiscal and monetary policy of the country. …
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Bank of England - Recent Lending Trends
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Bank Of England : Recent Lending Trends Introduction The Bank of England in the most important financial institution of the UK. It is responsible for regulating the financial conduct of the country. It does that by devising fiscal and monetary policy of the country. The main tool by which these policies are governed is the setting on the interest rate. The interest rate is determined by a board which is headed by the Chancellor of the Exchequer. This paper discusses some important financial statistics issued by the Bank of England. Recent lending trends have been the focus of this paper. Topics like loans to businesses, secured loan to individuals, corporate and consumer credit pricing form the core of discussion and give a clear view of what’s going around as far as the money lending market in the UK is concerned. About The Bank The Bank of England is the main monetary institution in the United Kingdom. It was established late sixteenth century, 1694 to be exact. It was nationalized as the nation’s premier bank in 1946. However it’s only been about 14 years since the bank has obtained independence in its decision making activities. The Bank of England is not only committed to providing and maintaining monetary and financial stability in the English money market, its roles extend way beyond the routine central banks of other countries. It is responsible for maintaining and regulating UK’s gold reserves and foreign exchange rates. As part of its responsibilities, the Bank of England has the authority to determine UK’s official interest rate. The decisions on the interest rate are taken by the Monetary Policy Committee (MPC) of the bank. Interest rates need to be determined accurately as it is very important to determine them correctly in order to achieve the desired inflation level in the English economy. For the current year, the Chancellor of the Exchequer of the Bank of England has set the inflation rate to be 2%. The core to the survival of any economy is the determination of the correct level of the rate of inflation within a country. Very high inflation rates makes money less valuable and it becomes pretty difficult for businessmen and investors to plan their investments ahead. Whereas low or medium rates of inflation encourage individuals to plan of their future without devoting too much time thinking about how high inflation could devastate the value of their money. Banking Statistics Almost all central banks world over maintain a large range of banking statistics. Similarly, the Bank of England publishes a vast range of monetary and financial statistics. Such statistics are very important for stake holders to determine important information about the bank. Potential investors often review the banking statics of a country before deciding to invest money in any project in such a country. The statistics published by the Bank of England include local banking statistics, exchange rates statistics, international banking statistics and external finance statistics. Inflation attitude survey and the UK yield curve data are other important financial indicators that are also published by the Bank (Brunner, 2010). Recent Lending Trends 1. Lending to UK Businesses The stock of lending to businesses inside the United Kingdom witnessed a contraction of almost 4 billion pounds in the three months to May 2011. The contraction can be attributed to the stock of lending to small and medium sized enterprises or SMEs. It has been observed that the SMEs are continuing to repay the debt that they had taken, thereby deleveraging their businesses (Bank of England, 2011). Larger businesses have more access to capital as compared to small businesses. They can access the syndicated loan market and capital markets as well. The total amount of syndicated loans given by the English banks was almost the same in the second quarter of 2011 as it was in the previous year. It has been figured out by market analysts that the syndicated loan market has largely been driven by the refinancing needs of existing businesses rather than investment in new projects. Larger companies alternately can resort to capital markets to gain access to finance, rather than going for the loan markets. Net capital issuance reached high positions in 2011, thanks to the two years high bond issued in May 2011. Comparatively the net equity issuance saw a downturn in the current fiscal year (Bank of England, 2011)) The chart below shows how funds were raised by businesses in the United Kingdom in the current year. 2. Secured Lending To Individuals The annual rate of growth in secured lending stock has remained fairly stable from what it was last year. It currently stands at 0.7%. The table below shows a breakup of secured lending made to individuals. Gross secured lending has not changed much from the previous year. However, the let buy to let market has witnessed some growth in this year. The buy to let market accounts for almost 12% of overall mortgages in the UK (Bank of England, 2011). Data gathered from major UK lenders shows that the amount of mortgage loans for home purchasing purposes for the second quarter of 2011was almost the same as that in the first quarter. It is also observed that remortgaging has slightly fallen as borrowers foresee an almost obvious increase in the bank interest rates. The table below shows mortgage lending by major UK lenders. Loan Pricing According to the information obtained by UK market analysts and lenders, the long term loan market witnessed great amount of volatility in the second quarter of 2011. 1. Corporate Loan Pricing The spread over the reference rates for big businesses continued to lower in the second quarter of 2011. Fees and bank commission also fell down significantly during this same period. However, people from the Credit Conditions Survey confirmed that for small and medium sized enterprises the spread and fee didn’t change as such. The associates at Credit Condition Survey are also expecting a further fall in fees, spreads and commission in the ongoing third quarter of 2011 for large businesses as well as for SMEs. The chart below shows the spreads over reference rates on lending to businesses of different sizes. 2. Consumer Credit Pricing Listed and effective interest rates on credit cards for the three months to second quarter of 2011 remained stagnantly same, though they were still higher as compared to the London Inter-Bank Exchange Rate (LIBOR) and the Bank rate. Discussion between major UK money lenders and financial analysts concluded that cut throat competition between banks on credit card lending, especially on lending made online was the reason why there was duration of zero percent on balance transfer offers. The self explanatory chart below explains what’s going on in the credit card market. Bibliography Top of Form Bank of England February 2011 Inflation Report: Oral and Written Evidence, Tuesday 1 March 2011 : Mervyn King, Governor, Charlie Bean, Deputy Governor, Monetary Policy, Paul Fisher, Executive Director, Markets, Dr Martin Weale, External Member of the Monetary Policy Committee, and Professor David Miles, External Member of the Monetary Policy Committee, Bank of England. London: Stationery Office, 2011. Print. Bank Of England. "Trends In Lending." Bank Of England. Bank Of England, 01 July 2011. Web. . Top of Form Brunner, Antje, and Jan P. Krahnen. Hold-up in Multiple Banking: Evidence from Sme Lending. Frankfurt am Main: Goethe-Univ., House of Finance, Center for Financial Studies, 2010. Internet resource. Bottom of Form Bottom of Form Read More
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