Why Statistics Lie! Don’t believe loan statistics

Loan StatisticsLoan Statistics

The British Bankers Association (BBA) publishes statistics on various aspects of banking and business lending. The BBA reports facts and statistics surrounding the UK banks and their activity in the business sector.

This blog article looks at loan statistics and how they can mislead, for the record nobody is saying the BBA mislead, the BBA are a professional body, it is about how statistics work.

Comment from the Quarter 4 2013 report says;

£7.1bn of new borrowing facilities were approved in Q4, 26% more than the same quarter of last year, and reflected across all industry sectors and regions of Britain. 40% of agreed overdraft facilities are not currently being used, while demand for new overdraft facilities, particularly from smaller businesses, fell towards the year-end. SME cash holdings rose by 9% last year

The flavour this leaves is that businesses should be finding access to finance easier.  It also suggests that cash holdings are rising and demand for cashflow facilities is falling.

However, this doesn’t appear to be the common perception. The question is, why is the perceived reality different from the statistics?

Why Statistics Lie

Loan statistics cannot be read in isolation. Ask yourself;

  • How many businesses did not ask their bank for overdraft facilities because they did not think it worthwhile, or that they would be granted?
  • Why are businesses holding more cash? Is this a positive thing or are they withholding spending to build up reserves?
  • If 26% more borrowing was approved, what was the base figure?

OK, all this is in the BBA report but you get the idea. The point is that statistics lie.

If you still remain unconvinced then consider these statistics provided by Spurious Correlations then ask yourself whether the next time a figure is quoted to you what it really means?

Consider These Statistics

I love this one, the statistic proves a correlation between deaths through people getting tangled in their bedsheets and revenue generated by skiing facilities in the US. Obvious eh?

Statistics - Correlation Gone WrongThere is a 97% accurate correlation between these two statistics. How much relevance is there? Probably none, but if you rely on statistics then this is what happens.

I once knew an economist that refuted the use of ‘averages’ when comparing economic positions, he used this analogy;

If you lay down with your head in the oven and your feet in a freezer, then on average you will be at a comfortable temperature

In reality you would be far from comfortable, and so the use of averages becomes distorted.

Next time a business bank tells you they approve 70% of all business loan applications, then reach for that pinch of salt. Oh, and give Lime Consultancy a call as we will get more business loans approved than clients doing it themselves, the statistics prove it…

By Dave Farmer

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