Lending up under FLS scheme, but too early to say scheme is working

Posted on 3 Dec 2012

The government’s Funding for Lending Scheme has lent nearly £0.5bn in the three months to September, while participating banks have drawndown £4.4bn from the Bank of England.

Lending to consumers and qualifying companies has risen since the introduction of the Funding for Lending (FLS) scheme in July.

Bank of England statistics show that £496m was lent to borrowers from when the scheme was launched in July to September. This includes domestic and business borrowers. But £4.4bn was drawndown from the Bank of England – which supplies the cheap loans – from the 35 participating banks.

The FLS figures include consumers and non-financial businesses. Banks’ loan books are dominated by mortgages, so it is hard to decipher how much of the modest rise is getting to companies.

Changes to participating banks’ net lending in the period varied widely. Barclays’ lending was up £3.8bn, or 2% of its total stock of loans, the highest lending in the Big Six high street banks.

Santander and Lloyds Banking Group were down the most, with -£3.5bn and -£2.8bn in approved loans over the period. However Lloyds’ lending for the period is only 0.6% of its entire loan stock (see below).

The Bank of England emphasised that, after just two months it was too early to see a strong correlation between appetite for drawing down the money and the effectiveness of the lending scheme.

Funding costs have fallen since the announcement of the FLS, the Bank said, but it will take time for reduced funding costs to feed through to lending volumes, given the typical lags involved in the loan application, approval and drawdown process.

Business groups were pleased with the first FLS figures but some were sceptical about who was borrowing the money.

“Though the Bank does not disaggregate the data, this is likely to have been driven by increases in credit to households, not businesses,” said Lee Hopley, manufacturing body EEF’s chief economist. “The challenge remains for UK lenders to re-engage with SMEs and support them with their investment plans.”

Paul Fisher, executive director for markets at the Bank of England, said he was confident that the FLS will help the supply of credit.

“Since the scheme was announced we have seen widespread falls in funding costs across different sources and an equally wide variety of lending rate reductions. But it is too early to use these data as a reliable indication of the impact of the FLS on lending volumes.

Given FLS’s slow start and the generally low appetite for borrowing in the economy, business groups suggested the government needs to do more in addition to the FLS to help SMEs access finance.

“Government must also now conduct a focused three month review on ways of bringing more private competition to bear in UK SME banking, including an explicit switching incentive or, the creation of a standard data portal for new challengers to assess potential new customers,” said EEF’s Hopley.

On its relatively high lending book, a spokesman for Barclays said: “Some banks have been more focused on deleveraging since the financial crisis and, due to excessive lending to non-confirming borrowers, are reluctant to lend to cohorts of borrowers such as real estate. Barclays did not have such a problem post-crisis and we have pushed lending to real businesses, as well as mortgages, throughout the downturn.”

Net lending of banks participating in the Funding for lending scheme,



In terms of total net corporate lending in the UK, RBS tops the league table followed by Barclays and then Lloyds Banking Group.