Lenders braced for looming ‘crunch point’

BANKS are preparing for a late autumn “crunch point” where businesses face tightening lending standards and defaults begin to rise as government support is wound down.

Industry sources warned that lending conditions are likely to become tougher by the end of the year but that any impact will be far smaller than first feared. One City source said late autumn was being seen as “potentially a crunch point when things hit” but added that it was “a more complex credit situation than the previous crisis” as the fortunes of sectors diverge.

They said lending conditions are already tightening in the worst hit sectors, such as hospitality and retail, as well as in construction, where rising prices and shortages are squeezing margins, adding: “They’re finding it more expensive to borrow or harder while other sectors are pulling ahead.”

Another banking source said: “As support from government sources, such as tax deferral and furlough, is tapered off, then you’d expect things to tighten up a little bit.” However, they stressed the market is “much more favourable than we all expected” with liquidity “incredibly strong”.