My name's Peter Ward. I'm a partner at LEK. I've been with the business just over 20 years and I co-lead our global financial services practice. One of the aspects of that is commercial and business lending. And in that context, we serve a range of clients, right from the largest high street banks down to new startup specialist lenders. For SMEs in particular, they represent a very substantial proportion of the UK economy, somewhat more than 50%, both of employment and all business revenue, and even a larger proportion of job creation and economic value creation in this country. Many people imagine that now is a very difficult time for SMEs, but it's interesting to note that, for example, even in 2020, there were around 400,000 SMEs created in the UK with a similar rate of creation in the first half of 2021.
Well, although it seemed obvious to many lenders that credit conditions would be very challenged indeed, over this period, the recent performance has exceeded all reasonable expectations and most specialist lenders now will tell you that not only have those performance rates done well, but actually they are even better than they were prior to the onset of the COVID crisis now that things have settled down. Through this period, LEK has been working with a range of specialist lenders and banks lending to SMEs with a range of issues, including their strategy with respect to how to grow and serve clients better in the new world, how to raise capital and how to raise funding. So at this stage of the economic cycle, many SME lenders have contracted their credit appetite due to concerns about credit performance. And this has led to lessened competition in many specialist segments. Those segments therefore become great commercial opportunities for those lenders who are sufficiently skilled and experienced to address them.
So things like property development finance, for example, or lending to care homes, both of which have negative headlines associated with them, may in fact be the best opportunities at this part in the cycle. So contrary to headline expectations, this is actually the most favorable part of the economic cycle for specialist lenders. Competition in some key segments is somewhat less intense than it tends to be over the economic cycle, as a whole. Funding is still very much available, particularly for those lenders who are experienced and have the right skills in particular segments. And lastly, credit performance is still very acceptable, much against expectations during the earlier part of the COVID crisis. There are also considerable risks associated with these opportunities.
For example, COVID 19. Although the initial emergency is arguably now over, still has some way to run in terms of the overall crisis and its impact. And secondly, partly in response to that, inflation rates and interest rates are both rising, which are more or less unprecedented in the history of younger businesses, many of whom have never in the course of their history paid anything like what more experienced investors would consider to be normal interest rates.
Overall, therefore there is very significant opportunity, but it's not easy to do well. Handing out the money is always the easy part of lending. Getting it back in profitably is the challenge. And in those circumstances, having a skilled, experienced guide informed by the latest information and competitive intelligence is essential to success. So, whereas digital transformation is often talked about in consumer banking in particular, in business lending. This has been a more difficult concept, partly because of the complexity of underwriting and the need for often manual understanding of businesses. That said, there are some new emerging business models. And I would pick out [ALCA 00:03:45] as one such interesting example and [Think Cats 00:03:48] is another, which make the very most of the data they've got available and pursue relationship management methods, but through more digital means that are now available, whereas they were not 10 years ago.
2022 I think should be a very positive set of conditions on the whole, for our clients with much better macroeconomic conditions, plenty of opportunity to develop new business models, new services and products, particularly in financial services. But equally there will be challenges, inflation and interest rates are amongst those. Hybrid working models, although at a headline level now secure, are very complex to implement and so on, and not only an opportunity, but also a challenge in terms of staff retention. 2022 will also be the year where COVID 19 has settled down to an extent that people will be thinking about the long term solutions and long term learnings out of the crisis. So the emergency phase is largely over. I think the UK and other economies cope much better with that than we were expecting to, but those solutions, what are the good bits we want to retain? What are the bad bits that we want to put behind us? And how does that turn into a strategy away from merely a series of tactics.
