Are businesses in Northern Ireland missing out on UK lending bounce?

First the good news – the UK enjoyed a much-needed lending bounce last year, with the outstanding amount of bank lending advanced to companies across the country increasing to £356billion in 2015/16, from £348bn the year before according to Bank of England data.  This feels like a cause for celebration, particularly for SMEs who have found access to bank loans and overdrafts increasingly hard to come by since the financial crisis.

Well – not necessarily. For businesses based in Northern Ireland the statistics are rather less positive.  In fact the value of all outstanding loans advanced to SMEs in Northern Ireland (including bank debt) fell slightly to £5.75bn in 2015/16, from £5.95bn the previous year (based on an analysis of balance sheets).  If Northern Irish businesses are being starved of funding it could put the region at a significant disadvantage and hamper investment and growth prospects.

So why is it happening?  Of course it’s difficult to know for certain, however it is possible to hypothesise …

Firstly, Northern Irish companies have probably been hit particularly hard by the big UK banks’ continued post-credit crunch caution amid tighter rules on capital requirements. Fairly or not, the region is still considered higher risk than some other parts of the country.

In addition, the introduction of “Basel III” banking reforms also favour lending to the very largest businesses – seen as the safest debtors under the rules. This of course affects SMEs across the UK as a whole, but for those in Northern Ireland it’s a double whammy.

With so many major banks headquartered in London, and with challenger banks yet to establish a strong presence in the region, many businesses feel that they are being ignored.  We regularly travel over to Northern Ireland to meet our friends and contacts and this lack of new entrants into the market is something we’ve often discussed.

Unfortunately, the outlook remains challenging. Some commentators believe that banks’ risk aversion has worsened since the Brexit vote. What’s more, given the current political interregnum in the region as its government remains uncertain, banks’ appetite to lend seems unlikely to recover significantly in the near term.  And this feels a bit unfair on Northern Irish SMEs.  We have researched the region in detail and the reluctance of banks to lend to businesses in Northern Ireland fails to accurately reflect its true economic situation – with strong business activity and many substantial opportunities for entrepreneurship and enterprise growth in the region.

Having said this, there is some cause for optimism. At Ortus we have built a good presence in Northern Ireland over the past 3 years and we are now seeing other smaller operators join us.  These are quality firms with good funding lines and great staff and they are being rightly welcomed by the broker community in Northern Ireland.  There is no question that introducers still need to think outside the box to secure the financing they need – but niche finance is widely gaining traction as a suitable option for many. With lending from traditional sources set to remain constrained, Northern Irish companies find themselves leading the way in embracing innovative alternatives.

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