Households and corporates suffer worsened credit conditions

A net 31.1% of lenders cut back on lending to households and small businesses in the past quarter, blaming a worsened economic outlook, reduced risk appetite and lack of available funds.

A net 28.2% said the same for non-financial corporate borrowers, according to the Bank of England's quarterly Credit Conditions Survey, released on Friday. (The figures represent the number of lenders who had cut back lending, minus the number who had expanded it, weighted for market share and expressed as a percentage.) Most banks expected to restrict lending still further over the next three months.

Lenders reported a decline in loan approval rates, lower loan-to-value ratios, and tightened credit scoring criteria.

Additionally, default rates and losses on secured lending to households rose over the past three months. A net 54.6% of lenders predicted the default rates on secured loans to households would continue to rise in the first three months of 2009.

A net 57% of lenders said problems in the commercial real estate sector had been the main driver of the corporate credit shortage.

There was a further reported rise in default rates for medium-sized and large corporates, with losses on loans in default increasing by more than lenders' expectations due to falling collateral values. A net of 60.2% of lenders said the default rate on loans to medium private non-financial corporates had risen, compared with a predicted 47.6% in Q3.