It has been a busy couple of weeks for the financials sector.
Barclays, RBS, Lloyds and HSBC all turned in positive interim results, and with both the looming interest rate hike and, according to an EY Item Club report, UK business lending projected to grow for the first time since 2008, banks look set to benefit.
“An early rise in rates would be welcome to the UK financial services sector,” said Chris Price, EY managing director. “For banks, it would widen the currently narrow delta between saving and lending rates, while for insurers and asset managers, it should boost investment returns.”
This is all very well for the banks, but for investors it poses a different question – with challenger banks making their presence felt, is it enough to warrant turning away from the so-called ‘legacy’ firms?
"If we see issues in the financial sector again then those banks with smaller balance sheets are much more at risk"
Legacy above finances
The EY report, published 3 August, predicts that domestic business lending will climb year-on-year from £391bn to £446bn between 2015 and 2019, following on from a Deloitte paper showing a 43% jump in financing for UK and European corporates by “non-bank” institutions in Q1 2015.
Furthermore, loans to small and medium enterprises (SMEs) are also on the rise, and it is in this space that Georgina Brittain, manager of the JPM Mid Cap Investment Trust, believes that the big banks have missed a trick.
