Challenger bank lending continues to climb with 11% uptick in 2020

Research by accountancy and advisory business BDO has found lending by challenger banks in 2020 reached a record high of £143bn – a hike of 11% on 2019.

According to BDO, challenger bank lending has close to doubled over the past five years. In 2014-15, lending for challenger banks stood at £71bn.

The company claims the rise in the value of the loan books of challenger banks has been aided by additional government lending through the Coronavirus Business Interruption Scheme and the Bounce Back Loan Scheme.

Furthermore, the rise in lending for residential mortgages – supported by a stamp duty holiday – has also helped challenger banks boost their loan books.

A key finding from the research was that business lending by challenger banks rose 26% over the past year, climbing from £12.2bn to £15.5bn.

Lending to companies made up around 11% of challenger banks’ total loan book. This was up from 9.5% the year prior.

BDO head of financial services advisory Leigh Treacy said, “The hope has been that challenger banks would add an extra element of competition to the business banking market – especially amongst SMEs.

“It appears that the government-backed loan schemes – much of which has gone through challenger banks – has given some of them a jump-start into the business lending market.”

“More SME lending will allow challenger banks to diversify away from residential mortgage loans and other products. While some forms of SME lending can be more capital intensive for banks than residential mortgage lending, challenger banks will now be looking to build on those relationships with SME borrowers and keep them as long-term customers.”

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