Bank lending data by postcode – what does it tell us?

When in July last year the Treasury announced that the UK’s biggest lenders were revealing how much they lent at a local level, like most people who work closely in trying to understand and address financial and social exclusion, we in Birmingham felt that this was a significant breakthrough.

As Danny Alexander stated at the time, this had the potential to be a major step forward in terms of transparency with the potential to ‘enable smaller lenders identify gaps in the market and allow businesses to hold their local bank to account where they aren’t lending’.

After major campaigns by the likes of Community Investment Coalition, the data was finally released in December through a  framework agreed by the British Bankers Association, Council of Mortgage Lenders and the treasury.  The data provides details at postcode sector level of more than £1tn of lending across Great Britain for residential mortgages, loans to small and medium businesses and unsecured personal loans.

In Birmingham we were keen to look at this data to see what it told us about how banks lend in local areas of the city, in particular in relation to our deprived localities and neighbourhoods known to be vulnerable to financial exclusion. The information has the potential to support a lot of our existing work, such as interventions supporting people who have no access to mainstream banking services and to stopping people going to high-cost lenders.  Towards the end of last year the Birmingham Fair Money campaign was launched, uniting not for profit lenders and credit unions with the aim of disrupting the growth of high cost lending in Birmingham.  This was followed by the launch of the fair money manifesto.

We therefore decided to analyse the data released by the banks, with a particular focus on the personal lending data.  We mapped the lending patterns across Birmingham and tried to combine it with population data and deprivation data to see if there is correlation between patterns of deprivation and more or less lending. You can download the full report here.

As with any analysis the report contains lots of lovely looking maps, tables and charts.  However what does the information tell us?  Can we draw any significant conclusions?

In summary it tells us a little but has the potential to tell us so much more.

This data does help establish a picture of lending practices within Birmingham, and on the surface there does seem to be some geographical disparity in lending across the city.  Credit unions have noticed that some of these areas are locations where they expected there to be less lending due to bank branch closures.

However on the whole it hasn’t really given us a clear picture of the personal lending in our city.

The first big drawback of the data is that it only shows the total amount of the outstanding balances of all loans in each postcode sector.  There is no other accompanying information.  So it is not possible to establish how many loans are outstanding in each area, and therefore calculate the average loan value.  We have used census information to establish loans per capita, however this only gives a partial picture.

Another big downside to the data is that as the data release is only voluntary, it only contains a proportion of all lending.  For example participating lenders were:  Barclays,  Lloyds  Banking  Group,  HSBC,  RBS,  Santander  UK,  Clydesdale  &  Yorkshire Bank and Nationwide Building Society.  These lenders only count for account for about 60% of bank lending to SMEs, 73% of mortgage lending and 60% of unsecured personal loan markets in Britain.  On personal loans it is estimated that the figures for participating lenders represent under 30% of the total national unsecured credit market.

As with many aspects of open data, the UK is significantly behind other countries in relation to financial lending data.  For example we can look quite enviously across the Atlantic to colleagues in the US who have access to many loan data sets.  Through the home mortgage disclosure act, the Federal Reserve release a great deal of data including information about applicant’s ethnicity, loan amount, loan denials, and a marker of whether the interest rate is high interest or not. It is released every year and provides communities with ways of looking racial and geographical disparities in lending.

There is no doubt that if we had this level of data in this country we could do a lot more.  Credit unions in Birmingham, such as Citysave, have suggested that there is potential power in this information.  They build their lending strategies by understanding their members and the communities they can potentially serve.  To be able to compete against high interest lenders, and to build effective interventions to stop people turning to local loans sharks, this data could if it was  more detailed, paint a clear picture of where to operate in the city and with which communities.

In summary, while it’s certainly a ‘thumbs-up’ that banks are starting to reveal this information, there is still a lot more that can be done – with little cost to the banks.   More transparent organisations can only build more trust in the financial system as a whole.  More information to local organisations can only improve how we serve our communities and protect the most financially vulnerable in society.