The banking sector in the UK is not performing up to the mark due to the slow UK economy growth and shortfall in the credit market.
The shortfall in the credit market will affect earnings at British banks, putting dividends at the Royal Bank of Scotland and Lloyds TSB under threat, as per experts at the worldwide financial services firm, Morgan Stanley, reported Reuters.
Together with the declining growth in the UK economy, a twist in the credit cycle and bursting of the commercial and residential property bubbles is expected to show peak cycle earnings for banks in the UK.
Other factors that were negatively impacting the UK banks were the low confidence among banks to lend to one another, dependence on wholesale funding and exposure to the economical factor. Also, hike in mortgage repayments and decrease in real earnings have mounted pressure on the overall households' income, resulting in a slowdown in both house price growth and momentum.
Moreover, a downturn in the UK banking industry is due to the loss in both employment and salaries which reduce the total bank profits. People didn’t seem to be excited towards the policies as offered by the banks because they have no money to save. Majority of earnings was left for daily usage only.
In addition to this, since September 2007, a funding crisis at the UK lender Northern Rock has disclosed problems with Britain's regulatory system, which had shackled the confidence of fixed income and equity investors and made the access to funds complicated. A dozen of the best-known banks and financial institutions of the country have increased funds on the back of £234 Billion worth of home loans over last seven years, using trusts with charitable status but hardly grant anything to charity.
The Council of Mortgage Lenders (CML) predicted Britain’s mortgage lenders to encounter a £30 Billion funding deficit 2008 if the Bank of England refused to step in to ease the credit crunch.
As per a Research Analyst at RNCOS, “The banking industry in the UK is not doing well due to several drawbacks. For a competitive and flourishing banking sector in the UK, banks have to take care of the needs of consumers. This necessitates lenders who have transparent strategies to take into account the changing world, with feasible funding models, boards and senior management who understand and know how to work for the best interest of their customers in diverse market conditions.”
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