U.K. Companies Will Rely Less on Banks After Crisis, CBI Says

By Brian Swint

Nov. 23 (Bloomberg) -- U.K. companies plan to rely less on banks for credit in favor of funding from bonds and equities, according to a survey for the Confederation of British Industry.

Fifty percent of companies will decrease financing from bank debt after the recession, the CBI survey of 66 company executives published in London today showed. Forty-two percent see no change in bank funding and 8 percent expect to increase it, according to the survey conducted by Ipsos MORI between Oct. 22 and Nov. 17.

“Companies will want to take lower risks with their balance sheets for some time to come,” CBI Director General Richard Lambert told reporters in a briefing last week. “The cost of credit is expected to be higher, and banks will be more risk averse.”

Lambert, who hosts the CBI’s annual conference today in London, said Britain may be on the brink of a “new era for business” after the deepest recession since the 1980s. The outlook for the U.K. economy may become clearer this week with Bank of England Governor Mervyn King’s testimony to lawmakers tomorrow and gross domestic product data the day after.

The British economy contracted 0.4 percent in the three months through September, the government reported a month ago. Economists forecast the figure to be revised up to a 0.3 percent drop when the statistics office publishes the second estimate for third-quarter GDP on Nov. 25, along with a breakdown of the data’s spending components.

Strauss-Kahn, King

International Monetary Fund Managing Director Dominique Strauss-Kahn will speak on the global economy at the CBI conference at 9:30 a.m. in London.

King, along with other central bank policy makers Paul Tucker, Paul Fisher, Andrew Sentance and Adam Posen, will testify to Parliament’s Treasury Select Committee at 9:45 a.m. in London tomorrow. The bank’s latest economic forecasts showed that economic growth may pick up enough to return inflation to the 2 percent target in three years.

Banks’ reluctance to lend has exacerbated the slump that has now lasted six quarters, the longest stretch since records began in 1955. About 27 percent of companies see a “slight improvement” in their access to finance next year, and 4.5 percent predict a “significant improvement,” the CBI survey showed.

“What we now need is a more balanced, less risky pathway to growth -- one in which short-term returns may be lower, but the long-term rewards for management success will be a lot more sustainable and secure,” said Lambert, a former member of the central bank’s Monetary Policy Committee. “There are important questions around how businesses are going to finance growth and investment in the future.”

Financial Strength

The financial strength of U.K. companies has started to improve, according to a separate report released today by Experian Plc, the world’s largest credit-checking company. Its index of businesses’ financial positions rose to 81.14 in October from 79.80 a year earlier, signaling that companies now have a smaller chance of failing.

Confidence among members of the Institute of Chartered Accountants in England and Wales has also risen for a third quarter, another report showed today. The group’s index of sentiment, based on 1,001 responses in a telephone survey from Aug. 5 to Oct. 24, climbed to 24.6 from 4.8 in the previous three months.

To contact the reporter on this story: Brian Swint in London at bswint@bloomberg.net.