BoE forecasts gloomy year for banks
Thursday 5 January 2012 - by Karina Whalley
The eurozone debt crisis and its effect on banks' funding conditions will also dictate credit availability over the coming quarter, bank and non-bank lenders told the central bank in the report, released on Thursday.
"Lenders commented that this reflected higher funding costs and the impact of increased regulation relating to banks' capital and liquidity positions," the BoE said in its review.
Karaian agrees that funding strains are forcing banks to tighten lending terms but warns that this comes at a time when borrowers are wary of adding new debt to strained balance sheets.
The UK credit supply for the upcoming year will depend on how the ongoing sovereign-debt turmoil in the eurozone affects bank-funding markets, lenders told the central bank.
"Lenders [commented that] economic problems in the euro area had led to stressed conditions for funding markets and interbank lending," said the BoE.
Across the corporate sector, tighter wholesale funding conditions, the economic outlook and bank balance sheet pressures were cited by the BoE as factors expected to constrain corporate credit availability.
According to the survey, the highest proportion of lenders since 2007 have raised concerns that funding costs will negatively impact lending.
"There is very little to suggest that it will be a happy new year for anyone connected with the UK's financial services industry," warned Karaian.
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