Bank loans to business fall despite Funding for Lending
UK bank lending has continued to fall, despite government attempts to reverse the trend through its Funding for Lending Scheme (FLS).
The FLS offers lenders discounted loans in return for boosting the flow of credit to the economy, and was recently beefed up to extend more loans to credit-starved small businesses after criticism over its impact.
Bank of England data showed that net lending fell £300m in the first quarter of 2013.
Lending to individuals was up, but loans to businesses were down.
Part-nationalised Lloyds Banking Group lent almost £1bn less during the quarter, despite having borrowed £3bn from the project, whilst taxpayer-backed Royal Bank of Scotland also shrunk its net lending by £1.6bn in the quarter, but has borrowed £750m from the Bank of England and Treasury scheme.
The Bank’s joint initiative with the Treasury, Funding for Lending, is designed to reward its 40 participating banks and building societies with ultra-cheap funds in return for growing their lending. But the latest figures showed a £0.3 billion slide in the latest quarter to March.
Less than a third of participants accessed the scheme and of those just £2.6 billion was drawn down. In total net lending among participating banks has shrunk £1.79 billion since June last year despite banks drawing down £16.45 billion in FLS funds.
The British Chambers of Commerce director-general John Longworth also hit out: “It is a concern that lending continues to contract despite the FLS having been in place for nearly a year. It is also worrying that usage of scheme seems to have dropped significantly since the end of 2012.”
The Bank of England and the Treasury massively increased the incentives on offer for banks to lend to businesses in April, which has yet to feed into new loans.