Bank & Non-Bank Lenders
Deals Activity: Low
Restructuring Activity: High
Deals activity in Bank & Non-Bank Lenders
- 1. The sector averaged about four deals per quarter in recent years, though this is principally at the smaller end of the market.
- 2. An increase in borrowing costs is likely to create some operational volatility, though may also make lenders more profitable over the longer-term.
Restructuring activity in Bank & Non-Bank Lenders
The sector has witnessed consistently high restructuring activity over the last few years.
Lower overall margins across core areas in the capital markets, as well as ongoing branch closures in the retail divisions, suggest operational efficiency remains a key focus.
Higher borrowing costs and supply chain bottlenecks continue to be a concern for companies as they look to extend their capital structure capabilities and operating base.
The ECB still sees non-performing loans rising across some European banks which will impact asset quality performance within their balance sheets.
Bank & Non-Bank Lenders
With the economic backdrop set to remain challenging over the months ahead, the way banks respond will be a critical factor in how the UK recovers.
The era of ultra-low interest rates appears to be over – at least for the time being. Pressure on banking margins, which have taken a significant hit during a decade of extremely low central bank interest rates, should ease as a result.
Set against an expected rise in rates, however, is the likely increase in bad debts. Deteriorating economic conditions are putting more companies in financial distress and tightening the squeeze on household budgets. How banks manage potential non-payment of loans and (further) covenant breaches will be critical, with regulators and the press monitoring closely.
Looking beyond the post-pandemic landscape, the sector faces a number of ongoing challenges:
IT upgrades
Particularly across the established clearing banks, IT infrastructure needs continued investment to meet the demands of online consumers, the threat from cyberattacks and regulatory requirements.
Regulatory requirements
The regulatory environment continues to evolve, especially following the UK’s exit from the European Union. Banks, especially those operating across borders, will need to continue working proactively to meet regulatory deadlines.
Managing costs
Keeping a lid on costs will remain a core priority for the sector, especially as smaller challenger banks target more profitable customers at established competitors.
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Nick Smith and Jason Lawrence lead our approach to Bank & Non-Bank Lenders nationally, supported by a wider specialist senior team that includes Mike Pink and Stefan Masheder.
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