Write offs of bad debts by UK banks rose sharply in the second quarter of the year, hampering their ability to increase lending to SMEs, according to independent finance provider Syscap.
Write-offs by banks and building societies jumped by 52% to £6.3 billion in the three months to June 30th from £4.1 billion the previous quarter.
The volume of write-downs during the second quarter of 2011 also showed a sharp year on year increase, up by 17% from £5.4 billion during Q2 2010.
Syscap claims that this new surge in bad debts and the need for banks to continue to build up regulatory capital means that the hoped for recovery in SME lending by banks will be delayed.
SMEs looking to invest in new technology or equipment in order to grow their businesses will need to look for alternative sources of finance.
Philip White, chief executive of Syscap, says: “The Bank of England is already warning of a tightening in lending conditions, and their latest figures show the size of the balance sheet holes that the banks need to compensate for.”
He adds: “With the economic situation deteriorating in the second half of this year, the banks are not going to be able to turn the taps back on any time soon. That means that businesses are going to find it far easier to raise funds for capital investment by securing it against their assets with leasing, rather than seeking a conventional loan.”
According to Bank of England data, write downs of sterling debt jumped a massive 60% between Q1 and Q2 of this year, reaching £5.1 billion for the three months to the end of June, compared to £3.2 billion in the first three months of the year.