£60 billion debt refinancing ‘time-bomb’ could scupper recovery
Despite the Chancellor’s predictions of a return to growth “by the end of the year”, international law firm, Pinsent Masons, is warning that continued tightening of credit terms offered to British companies by UK banks could delay economic recovery significantly.
As many as a third (31%) of companies say that they have seen the terms and conditions upon which they borrow become less favourable, whilst a quarter (26%) expect their banks to tighten borrowing terms further over the next six months. With some £60 billion of corporate debt needing refinancing in 2009 and 2010 alone, Pinsent Masons is warning that many may not get the finance they need to work through the current rough patch.
Pinsent Masons undertook an exhaustive survey of leading businesses in March and April. It believes that most companies do not yet appreciate the scale of the re-financing threat to their businesses.
Martin Bishop, Head of Banking and Finance at Pinsent Masons, says, “We’ve seen a significant contraction in the number of foreign banks that are happy to lend to UK borrowers. That means that the weight of the primary loan market is resting even more with UK banks, which will become even more selective in deploying capital. Businesses need to consult their lead banks well in advance of any re-financing needs and we anticipate that even some long-term customers may struggle to get the finance they need.”
The survey also found widespread feeling amongst companies that the government’s fiscal stimulus package, including bank recapitalisation, is not working – with 62% saying that it either wasn’t working at all or wasn’t of much benefit.
Similarly, the reductions in the Bank of England base rate have failed to deliver much benefit to businesses on the ground – with 56% saying they either haven’t impacted or have impacted very little on their business – although they’ve been more beneficial than government measures.
Longer-term, the survey found significant support (79%) for the idea of increased regulation of the banking and financial system – agreeing it was a “price worth paying” for increased stability.
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