UK Businesses Missing Out on Bank Interest Rate Opportunities

UK Businesses Missing Out on Bank Interest Rate Opportunities

 

Recent Bank of England data highlights a growing concern for UK businesses: the effective interest rates on corporate banking arrangements remain misaligned with the higher base rates.

This persistent disparity shows that businesses can improve profitability by more proactive management of their banking arrangements.

Key Insights from the Latest Data

The Bank of England’s effective interest rates for October reveal a modest rise across various deposit and loan categories:

  • Sight Deposits: Rates increased from 2.49% in September to 2.60% in October. While this marks progress, it remains below the level corporate customers could achieve through more competitive arrangements.
  • Time Deposits: Rates rose from 4.48% to 4.62%, reflecting slightly improved alignment with market conditions. This suggests a more competitive market for term deposits.
  • Loans: Effective rates climbed from 6.71% to 6.90%, indicating higher borrowing costs for businesses. This trend is a concern for companies that rely on ban borrowings.

The net interest margin for banks continues to rise. Businesses with suboptimal banking structures are unwittingly subsidizing bank profits, as legacy arrangements fail to capitalize on available market opportunities.

Addressing the Disparity

The gap between the returns businesses receive on bank funds and the rates they pay on borrowings underscores the need for proactive financial management. Companies actively reviewing and renegotiating their banking relationships achieve significantly better outcomes. For instance, Bankhawk’s benchmarks show that optimally structured banking arrangements can generate significantly improved profitability. 

The Path Forward

To mitigate this growing issue, businesses should:

  1. Benchmark Current Arrangements: Understanding how your effective rates compare to market averages is a crucial first step.
  2. Engage in Active Negotiation: Leverage data to secure better terms on both deposits and loans.
  3. Adopt a Proactive Approach: Regularly review and adapt banking strategies to remain competitive.

The latest figures reiterate the importance of taking action now. With banks increasingly profiting from widened net interest margins, businesses must ensure their financial strategies are optimized to safeguard their profitability.

PNFCs deposits and loans

A PNFC is a private non-financial corporation.

 

 Effective interest rates for: PNFC’s on stock outstanding of deposits and loans

Effective interest rates for: PNFC’s on stock outstanding of deposits and loans

Outstanding facilities

  1. The effective rate for sight deposits increased by 0.01 % from 2.67% in September to 2.68% in October.
  2. The effective rate for time deposits decreased by 0.07 % from 4.43% in September to 4.46% in October.
  3. The effective rate for loans decreased by 0.02 % from 6.77% in September to 6.75% in October.
Effective interest rates for: PNFC’s on new deposits and loans

 

Effective interest rates for: PNFC’s on new deposits and loans

New business

 

  1. The effective rate for time deposits decreased by 0.06% from 4.36% in September to 4.30% in October.
  2. The effective rate for loans increased by 0.09% from 6.59% in September to 6.68% in October.

 

Table: Effective Interest Rates paid/received on PNFC balances by UK MFI’s (excluding Central Bank)

Per cent – Not seasonally adjusted

Effective Interest Rates paid/received on PNFC balances by UK MFI’s (excluding Central Bank)

 

Source: Bank of England – Statistics – Published October 2024

 

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