Is The Retail Finance Market Opening Up?

The Bank of England reports a "widespread retreat from risk" amongst UK banks, in the face of:

• the sovereign debt crisis;
  
• a heavy refinancing schedule until 2012;
  
• the impact of the banks' own reduced appetite for risk;
  
• greater insolvency risk, particularly amidst negative equity in the commercial property sector; and
  
• higher future capital/liquidity requirements.
  

That's why we've also seen:

• a 23% decline in lending under the government-mandated small business loan scheme in the 6 months to March (despite bailed-out banks being told to lend more, rather than less);
  
• Moneyfacts report that the number of mortgage products has fallen, and margins remain high.
  

And it's not just on the lending front that banks face pressure. Savers must be offered a better deal after the Office of Fair Trading responded favourably to a super-complaint by Consumer Focus. If consumers are careful to switch for better returns, that unduly cheap source of bank lending capital funding may begin to dry up.

Fear and caution amongst the banks is likely to continue for some time yet. Deloitte says CFO's fear a double dip and government paves the way for cheaper public sector redundancies as departments prepare to implement 40% budget cuts.

Yet businesses and individuals still need funding at rates that don't merely suit the banks. The fundamentals that made Zopa a great idea in March 2005 are even more favourable today.

Necessity remains the mother of invention...

Image from Monica's dad/Flickr/Some rights reserved