Credit crunch grip weakening as conditions start to stabilise says CBI
But shortage of trade credit insurance remains a worry.
Access to finance remains a serious problem for businesses, but the rate of deterioration in credit conditions slowed further over the past three months, and conditions are expected to stabilise in the months ahead, the CBI said today .
Responding to the CBI’s latest Access to Finance Survey, businesses were less negative than they were in March about the supply of new and existing credit.
Asked about the availability of new credit lines over the past three months, a net 20% reported that the situation had deteriorated. While this indicates that supply remains tight, conditions have eased since March (-36%) and January (-62%). For existing credit lines, the balance was -10%, compared with -16% in March.
The easing of conditions for new credit supply is expected to continue. Only a net 7% of firms see a further fall in new credit supply over the next three months. Meanwhile, no further worsening is anticipated for existing credit supply. 10% of firms expect the situation to improve, and another 10% expect it to deteriorate, giving a balance of zero per cent, which indicates that conditions for existing credit will be stabilising.
Ian McCafferty, CBI Chief Economic Adviser, said: “Credit availability is still a concern, but the severity of the situation is easing compared with a few months ago. Big companies who were encountering serious problems getting credit at the start of the year are still finding it difficult, but they expect that the supply of existing credit will get slightly easier over the next few months.”
While the tightening of credit supply in bank loans and overdrafts has moderated over the past three months, trade credit insurance remains a significant problem. A balance of 54% of firms reported its availability had worsened in the three months to May, although this was not as severe as in the March survey (-72%).
Mr McCafferty added:”While the government has made some welcome moves to improve the availability of trade credit insurance, it remains a very live issue for many businesses, and more could be done to ease the pain.
“A backdated implementation date would be beneficial, as would some assurance that the government’s scheme will not come to an abrupt end in October.”
In the three months to May, fewer businesses than in the March survey said that the cost of finance had gone up. There was also a clear fall in the proportion of firms reporting a rise of over 100 basis points for new and existing credit compared to the March survey.
Although the credit crunch continued to hit business activities in the three months to May, its impact was less severe than in previous surveys. Capital investment remains the business activity that is hardest hit, and employment is another key area being affected, with a third of firms (-35%) saying that they have cut jobs in the past three months in response to the credit crunch.
Small and medium sized firms with up to 249 employees said that the rate of deterioration in credit availability had eased over the past three months, and they expect no further decline in the supply of new credit over the coming three months.
Very large companies with over 5,000 employees reported a significant slowing in the rate of decline of new credit and saw no further decline in the availability of existing credit in the three months to May. They predict a slight improvement in existing credit over the coming three months.
