More big firms defaulting on loans, Bank of England warns Lenders say demand is low and that the eurozone crisis may force them to tighten borrowing rules. Increasing numbers of larger companies are defaulting on their loans, the Bank of England warned on Thursday, as it revealed that the impact of the eurozone crisis may force banks to toughen lending rules for companies and households. In a study of the fourth quarter of 2011, the Bank of England found that default rates on loans to large and medium-sized companies had risen for the first time since the end of 2009. The Bank's quarterly credit conditions survey also reported that banks were warning that default rates by such firms were expected to go on increasing. It said: "Lenders reported that default rates for secured and unsecured loans to households had fallen in the past three months, although default rates for unsecured loans were expected to stabilise in the coming quarter. For large and medium-sized corporates, default rates were reported to have picked up for the first time in two years and a further pickup was expected. Lenders were experiencing little demand, and warned that the financial crisis would ultimately determine the level and price of loans. Households might also find it harder to get a mortgage. The Bank said: "Although lenders expected a small increase in overall credit availability in the coming three months, factors such as the economic outlook and tighter wholesale funding conditions were expected to impact negatively on credit availability. Lenders commented that developments in the euro area and their impact on banks' funding conditions would be a key determinant of credit availability over the coming quarter. Lenders told the Bank that they expected a "tightening of credit scoring criteria for granting new secured loans to households and a tightening of covenants on loans to large and medium-sized companies." They said that the increasing costs of raising money on the financial markets was forcing up the price of lending to large companies. The Bank noted that while default rates on secured loans to households in the fourth quarter had fallen, lenders' expectations of potential losses should households start to default - so-called "losses given default" - were rising. "Some lenders noted the depressed housing market as a factor adversely impacting lenders' ability to recover any losses," the Bank of England said. The survey indicated that times were getting tougher for some larger businesses, which lenders said were running out of "remedial actions" which might indicate that they had already taken steps to lay off staff or reduce costs. It said: "Across the corporate sector as a whole, a number of factors were expected to constrain corporate credit availability, including tighter wholesale funding conditions, the economic outlook and bank balance-sheet pressures. The survey showed the largest net balance of respondents reporting a negative impact of wholesale funding conditions on credit availability since 2007 - both for the past three months and the coming quarter - with lenders commenting that economic problems in the euro area had led to stressed conditions for funding markets and interbank lending. The assessment may be a cause of alarm for the government, which is working on ways to get more credit flowing to small businesses through £20bn of guaranteed loans. Simon Collins, global head of transactions and restructuring at KPMG, said: "For those in hope of a liquidity-fuelled recovery, today's report will disappoint ... companies of all sizes are avoiding debt, both to reduce risk and because debt is expensive. They are refinancing where they must, but not borrowing to drive investment or M&A [mergers and acquisitions] activity. It's not surprising, but it confirms that borrowers are being rightly defensive - and that tends to be a self-fulfilling sign of low confidence in a recovery.