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UK banks abandon SMEs to the challengers

OakNorth shows that SME lending need not be unduly risky and can be highly profitable, and other new banks are following its example.


At the end of April, OakNorth, the new, profitable and fast-growing digital bank that makes loans of between £500,000 and £40 million to fast-growth UK businesses and established property developers, announced four new hires of experienced bankers to oversee expansion in Manchester, Birmingham and Bristol.

These new arrivals from Europa Capital Debt investment, RBS, Investec and HSBC join a bank that has lent £3 billion since launch in late 2015, more than doubling loan facilities in the last 12 months. After taking just 11 months to break even, OakNorth trebled profits last year to £33.9 million up from £10.6 million in 2017.

It’s not meant to be like this. The UK’s small and medium-sized enterprises are labouring under the threat of Brexit, reluctant to invest for expansion, worried about the domestic economy and fearful of export prospects.

While Bank of England data show lending to large companies growing at 6% recently, lending to SMEs has flat-lined for three years. Almost half of UK SMEs are now classed as permanent non-borrowers, supposedly happy in that condition; although it is not clear how many decline even to apply for bank loans for fear of being turned down.

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