Funding for Lending fails to increase lending

​The Bank of England has today published updated data on the use of the Funding for Lending Scheme for the first quarter of 2013.

Related topics:  Specialist Lending
Amy Loddington
3rd June 2013
Specialist Lending cash coins increase grow money growth
In the quarter ending 31 March 2013, 13 participants made FLS drawdowns of £2.6bn, taking the total amount drawn under the Scheme to £16.5bn.  Net lending by FLS participants over the quarter was -£0.3bn.  There are now 40 groups participating in the Scheme, which cover over 80% of the stock of lending to the real economy.
 
The report noted that the trend of flat lending growth is present in both the aggregate net lending data already published (which includes lending by non-FLS participants), and for FLS participants in the data published by the Bank today.  It also will take time for the improvement in credit conditions experienced since the launch of the FLS to feed through to lending volumes, given the typical lags involved in the loan application, approval and drawdown process.  Prior to the launch of the FLS in July 2012, Bank staff judged that UK bank lending was more likely to decline than increase over the subsequent 18 months.  Net lending is expected to pick up and become modestly positive over the remainder of the year.
 
The Bank and HM Treasury announced an extension to the FLS on 24 April 2013, with three main objectives:  to give banks and building societies confidence that funding for lending to the UK real economy will be available on reasonable terms until January 2015; to increase the incentive for banks to lend to SMEs both this year and next; and to include lending involving certain non-bank providers of credit, which play an important role in providing finance to the real economy.  The extension has been positively received, with many banks and building societies intending to participate in the extension.  
 
Commenting on today’s data, Paul Fisher, Executive Director for Markets at the Bank of England, said:

“The picture of flat lending growth overall is broadly as expected at this stage reflecting reductions in some legacy portfolios being roughly offset in aggregate by expanding new lending.  The plans of the FLS participants suggest that net lending volumes will pick up gradually through the remainder of 2013.”

Louise Beaumont, co-founder of the business finance provider Platform Black, comments:
 
"The Funding for Lending Scheme has lost its fizz. The initial surge in lending has petered out as the banks return to form.
 
"Despite all their protestations to the contrary, many are using the cheap money offered by the scheme to shore up their loan books rather than lending it out.
 
"Since the scheme began they have drawn £16.5 billion from the Bank of England, yet they still lent less in the first three months of the year than in the previous quarter. The FLS's name is now horrendously out of kilter with its reality. The funding is clearly not going towards lending, but disappearing into the banks' vaults.
 
"The chasm is especially bad when you look at business lending. The Bank's own figures show that business lending fell by £3 billion in April, even as interest rates rose. Mortgage lending has increased, and that has spared the banks' blushes in previous report cards. But now the nosediving rates of business lending are dragging down the total figure too.
 
"Despite their greater access to funds, the high street banks' risk aversion has become endemic, and most won't consider lending to a business without significant assets and security - which rules out most of Britain's small businesses.
 
"In many cases, even when companies are offered a loan, the terms can be so prohibitive that they are just not practical. The banks' continued unwillingness - or inability - to lend to businesses has led ever more companies to seek funds from alternative finance providers. The banks still have a vital role to play oiling the wheels of British business, but their monopoly on lending is gone for good."

Stephen Smith, Director Housing and External Affairs, Legal & General Network, commented:

“Undeniably the Funding for Lending Scheme has had a positive impact on the supply of mortgage finance since its introduction in the summer of 2012. We have seen it support what were tentative signs of market recovery at that time and it has continued to underpin the relative resurgence we have seen more recently. 27 out of 40 participant groups in the scheme have increased net lending in Q1 2013 and the hope is that more will follow suit as the year continues.

"Perhaps most importantly FLS has helped to restore confidence to both borrowers and lenders and confidence is a key commodity in any market. However, FLS is ultimately a short term measure and its important that this is seen as the stimulus it is rather than a panacea.“ 

Stewart Baird of SME venture funding company, Stone Ventures, said:
 
"Net lending of -£0.3bn in the first quarter and -£1.8bn over the past year or so relays how limited the impact of the Funding for Lending Scheme has been. From a business lending perspective, the Funding for Lending Scheme has been an absolute failure. We certainly don't need to be told that net lending to business has largely been negative.
 
"Every business in the UK can feel it. Little has changed. The banks remain as cautious now as they were two to three years ago. Yes, a handful of lenders including Barclays and Nationwide have taken advantage of the Funding for Lending Scheme but many more have given it a wide berth.
 
"Our discussions with smaller businesses suggest that the banks' criteria remain extremely tough. Their instinct, as paradoxical as it sounds, is not to lend. If a company doesn't have significant assets and security, the banks are especially risk-averse. I hold out little hope for the alleged plans of the FLS participants to lend more during 2013."
More like this
Latest from Property Reporter
Latest from Protection Reporter
CLOSE
Subscribe
to our newsletter

Join a community of over 30,000 intermediaries and keep up-to-date with industry news and upcoming events via our newsletter.