Nationwide and Lloyds head up jump in lending

Tim Wallace
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LENDING increased in the second quarter for the first time since the Bank of England launched its cheap funding scheme a year ago, official figures showed yesterday.

The Funding for Lending Scheme (FLS) gives cheap funding to banks on the basis they then lend it on to businesses and households.

If their net lending falls, the cost of funding rises, while if their lending levels increase more funding becomes available.

In the three months to June net lending increased £1.62bn among the 41 banks and building societies that have signed up to the scheme.

Lending since June 2012 is still down £2.29bn, but lenders have at last started to turn the situation around.

The Nationwide Building Society led the increase – its net lending is up £2.26bn on the quarter and £7.05bn on the year.

Lloyds came next with net lending up £1.28bn on the quarter. However it typifies the national situation, with net lending still down £5.34bn on the year as it had been cutting lending in non-core areas and reorienting its business to focus on small firms and households. It came as the lender returned to profit after years of loss-making reconstruction, following the financial crisis.

Not all lenders increased the flow of credit. The biggest faller was RBS where lending fell £2.79bn in the quarter.

It is still turning around its business, increasing lending in some areas but cutting risky loans.

And Santander’s net lending fell another £1.77bn.

The bank argues it is diverting resources from mortgages to small business loans which are more capital intensive, as a result reducing its overall lending.

Santander also paid back £900m of the £1bn it had drawn down from the scheme.

“The scheme has resulted in a lower cost of funding for banks on the wholesale markets,” said chief Ana Botin.

“Thanks to FLS, it is now significantly cheaper for Santander UK to raise funding independently rather than through the scheme.”

Shares in Lloyds closed up 1.06 per cent yesterday at 73.32p.