Could a post-Brexit banking exodus boost challenger demand?

Last year, La Défense – a major business district on the outskirts of Paris – launched a campaign urging companies with offices in London who were “Tired of the fog?” to “Try the frogs!”

Since then, some UK challenger banks have suggested that an exodus of their high street competitors could prove an opportunity for smaller players.

“If larger institutions were to relocate to the likes of Paris, Frankfurt or Berlin, it’s possible that a number of deals could be put on hold or slowed down even more than usual, which could in turn, lead to increased demand for loans from new banks, like us, which are not burdened with issues around passporting,” explained Rishi Khosla, CEO of OakNorth Bank.

And it is not just the banks’ presence in the UK which could shift in the wake of Brexit, as last month bridging lender Funding 365 claimed that post-Brexit turmoil could dampen foreign investment.

This followed news from Lloyds Bank that economic uncertainty was considered the biggest threat to UK businesses during the first half of 2017.

Meanwhile, in January, only half of commercial and residential brokers reported feeling confident about their potential for growth this year.

Even fintech – the crowning jewel of the UK’s start-up sector – has not remained unscathed, with venture capital funding dropping 36% in 2016 amid concerns over access to European talent.

This uncertainty, Rishi argued, had caused some of the bigger institutions to become more reticent with their lending.

“Since the vote, we’ve seen a substantial increase in demand for our loan products – we tripled our loan book to £300m in the second half of 2016 and we’ve got a further £500m in the pipeline for this year.

“This surge in demand has been driven by larger lenders retrenching from the market, and the fact that entrepreneurs often find opportunities to grow their businesses in times of economic turmoil.”
 

There are concerns over access to migrant workers in numerous UK industries

‘Challenger banks are less likely to relocate’

Like Rishi, James Bloom, managing director of development finance at Masthaven Bank, believed that larger banks becoming unsettled had the potential to benefit UK challengers.

“There is no doubt that some of the mainstream global banks may look to relocate in the wake of the Brexit vote; some have already signalled their intention to move.

“I think the more nimble – often UK-based – challenger banks are less likely to relocate.

“Moves and decisions made by the traditional established banks can often lead to opportunities for newer banks, and I think Brexit is no different.”

Despite this optimism, some challenger banks remained sceptical about whether such an exodus would even take place.

“There has been speculation that some bigger banks may relocate certain operations and roles abroad to preserve EU market access,” conceded Mark Sismey-Durrant, chief executive officer at Hampshire Trust Bank.

“However, we believe that London will remain a key financial hub and that, therefore, it is highly unlikely that there will be an exodus as some have stated.

“Foreign bank lending in the UK will probably hold up.”

With post-Brexit uncertainty evidently continuing to be as ubiquitous in 2017 as it was last year, James also admitted that the future was by no means set in stone.

“It’s a watch-and-wait situation right now, because at this point we don’t know the details, timescales or real ramifications.

“But I think it will certainly lead to opportunities for some of the challengers.”