Firms in the UK’s financial services sector are turning to bank accounts to pay debts, an indication that some of the country’s biggest companies are beginning to use their own savings to cover their growing debt loads.
A report published on Tuesday by consultancy firm Credit Suisse shows that British banks and other financial institutions are beginning their own efforts to use a variety of methods to meet their growing cash needs.
“We’re seeing a number of companies in the financial services industry starting to take this step, but it’s not as large as some of us had anticipated,” said Credit Suiss Credit Analyst Colin Dickson.
“Some of the biggest players are beginning this, but there’s still a lot of work to be done.”
Financial institutions in the United Kingdom have seen an average of 1.8% in total interest costs over the past five years, with the average for UK financial firms being 2.6%.
The report also found that interest costs increased by an average 12.9% for British companies in 2017, a rate that was slightly higher than the global average of 12.7%.
The findings come after British banks were forced to restructure more than £30 billion of debt in 2017 and early 2018, after the Brexit vote, and the Bank of England has said that the global financial system is on a “tipping point.”
“We’ve seen a number companies in recent years come forward and say that they want to change their ways of doing things,” Dickson said.
According to Credit Suuss Credit Analyst, Colin D. Dickson, British banks are beginning “a range of ways to meet growing cash requirements” and have “found themselves on the brink of insolvency.”
Credit Suisse estimates that more than 1.3 million UK firms have between £100 million and £1 billion in debt.
Credit: Credit Suiserys (Credit Suiss)The firm said the trend towards “finance sales departments” that are primarily involved in servicing the debt of banks is beginning to be adopted more widely.
Firms in financial services, especially in the City of London and its related industries, are increasingly relying on the use of their own funds to fund their debts, and are using savings to meet this need.
“In the UK, finance sales are the most common method of debt financing and accountancy debt is the most significant source of finance sales debt in the sector,” the report said.
“The UK has seen a significant increase in the use and amount of finance finance sales over the last five years.
Firms are increasingly focusing on the provision of financial services and their sales departments have been able to scale up to more than a million staff in 2017 alone.
In addition to the increasing use of finance and accounting debt, British companies are also increasingly using debt to finance acquisition of assets, such as private equity and infrastructure projects.”
Credit Suis recent study found that companies in finance sales were responsible for approximately $2.2 trillion of UK-wide debt servicing debt in 2016, while private equity companies accounted for $2 trillion,” the study added.
[Banks] have become increasingly reliant on private equity to provision financial services debt and they are increasingly outsourcing this function,” it said.