Financial Services Activity shows strong growth

Financial services business volumes and income both grew strongly in the three months to June, but firms say they are less optimistic about their business situation than in the last quarter.

Of the 108 financial companies that responded to the CBI/PwC survey, 59% saw volumes rise in the quarter to June, and 21% reported a fall. The resulting rounded balance of +39% marks a further acceleration in the rate of growth, as well as being the ninth consecutive quarter of growth. Companies reported that overall levels of business were above normal (+10%), for the first time since June 2007.

The improvement in growth was driven by business with overseas customers (+42%) and financial institutions (+15%). Business with private individuals continued to rise at a similarly solid pace to the previous quarter (+19%), but with industrial and commercial companies it was broadly flat (+3%).

Income also rose strongly, with the increase in income from fees, commissions and premiums (+43%) and net interest, investment and trading (+37%) relative to the previous three months, both beating expectations. Further growth is expected next quarter, but at a slightly slower pace.

At the same time, average spreads widened further during the past three months (+37%), rebounding from a slight weakening in the March survey (+11%).

The combination of strong growth in business volumes and income and a widening of spreads meant that profitability continued to rise solidly (+25%), at a similar pace to the previous quarter (+21%), marking the twelfth consecutive quarter of growth.

But despite strong growth in activity and expectations that this trend will continue, financial services firms overall were less optimistic about their business situation in the three months to June (-13%). This partly reversed the rise in sentiment in the previous quarter (+32%).

Furthermore, in the three months to June, the number of people employed in the financial services sector fell modestly (-7%), against expectations of a rise. However, companies expect to resume hiring during the next three months (+15%).

Firms’ investment intentions for the year ahead have softened compared with the previous quarter. Spending on marketing is expected to remain unchanged (0%) relative to the previous 12 months, and businesses plan to spend less on vehicles, plant and machinery (-18%). While investment on IT is expected to increase (+25%), intentions have weakened relative to the March survey (+47%).

The majority of firms continued to cite uncertainty about demand and business prospects as the factor most likely to limit capital expenditure (48%). The weak level of demand also remained the factor most likely to constrain business expansion (83%).The number of firms citing a shortage of finance as a constraint to investment picked up, continuing the volatility in this data in recent surveys.

Regulatory compliance is once again a key driver of business costs and capital expenditure plans. The number of financial services firms anticipating having to spend more on regulatory compliance over the next 12 months relative to the past year rose to +77%, up from +58% in the last quarter. More firms also highlighted this as a motivation for capital spending in the year ahead (68%, the highest proportion since June 2010). More than half (54%) of respondents said that dealing with statutory legislation and regulation was likely to limit their ability to increase business over the next year.

Ian McCafferty, CBI chief economic adviser, said: “The financial services sector has seen another quarter of robust growth, with business volumes, income and profitability all rising solidly once again.

“However, businesses are less optimistic than in the previous survey, have reduced headcount and are reappraising investment plans. Regulatory compliance is an increasing factor shaping investment, activity and intentions.”

Invoice finance keeps on growing

New quarterly figures from the Asset Based Finance Association have shown that both total funding and turnover from companies using invoice finance remained broadly positive in Q1, with year-on-year growth.

However, UK and Irish firms are still remaining cautious and not accessing all of the funding which is available to them.

Turnover from companies using invoice finance grew 6% in Q1 2012 compared to the same period last year, with total client sales at £59.2bn, up from £55.6bn in Q1 2011. Funding by the ABFA’s members to businesses has also risen 4% year-on-year, with £15.4bn outstanding in advances at the end of March. While this figure is slightly down on the previous quarter’s total advances (by 1.9%), the fall was fully expected with Q1 figures traditionally showing a slight drop and annual growth remaining positive.

This year-on-year growth contrasts noticeably with the rise in available funds, which, at 8%, is double the rise in advances. Total funding available in Q1 2012 stood at £22.9bn, meaning there is a further £7.5bn of finance which companies could be accessing. This guarded approach has continued for more than a year now, with firms steadfastly not accessing all of the funds available to them.

The total number of clients using invoice finance also rose noticeably in Q1, underlying the sector’s growth potential, with a net total of 493 new clients coming on board, pushing total client numbers up to 41,989.

Kate Sharp, chief executive of the ABFA, said: “The new figures show a broadly positive picture, with both total funding and turnover from companies using invoice finance rising year-on-year, plus the number of clients increasing. However, the new figures also show a conservative approach to accessing funds from firms, with their appetite for new investment and maximising growth potential being muted. With the economy back in recession perhaps this is not surprising, but equally it does mean there will probably be missed opportunities.”

Aldermore Shaking up business banking

Aldermore has launched a series of new products aimed to shake-up the business savings market.

With a one year fixed rate account paying 3.25% AER and a six month fixed rate account at 2.35% AER, the new business accounts can be opened online within 15 minutes.

The accounts are operational as soon as they become live, allowing for deposits to be transferred from other lower paying accounts, with immediate effect.

These product launches come after research by YouGov found that 89% of SMEs feel the interest rate they receive for business savings is unfair, and just 9% of SMEs are satisfied with their business savings accounts. The survey of more than 1,000 small firms also revealed that four in five SMEs think that banks do not make it easy for them to switch accounts.

Phillip Monks, Aldermore’s CEO, said: The new business accounts will flip much of the poor practices on its head, as we are offering great rates and true online access, which is also supported by a UK-based call centre.

“We hope this announcement means we are going to shake-up the British savings market. This step-change for the bank is just the start, as there are other new initiatives which will follow throughout this year.”