THE CO-OPERATIVE Bank borrowed almost £1bn from the Bank of England in the first three months of the year but continued cutting lending, official figures showed yesterday.
Overall lenders drew down £2.62bn from the Bank in the quarter while net lending dipped another £300m.
The Co-Op joins RBS, Lloyds and Santander, which all slashed net lending again despite taking support from the Funding for Lending Scheme (FLS) since it was set up last summer.
RBS and Lloyds both argue they are restructuring to focus on UK retail lending, only cutting non-core lending as they run down parts of their businesses which are no longer wanted. RBS cut net lending by £1.6bn while Lloyds trimmed back £197m.
And Santander is cutting mortgage lending to focus on business lending – a more capital-intensive area, meaning they must cut overall loan volumes. Its net lending plunged £2.3bn.
The troubled Co-Op drew down £900m from the FLS, but cut lending £12m in the quarter. The bank stopped lending to new business customers in the quarter, and it having trouble filling a major hole in its capital levels. It told City A.M. that it used the funds to lower interest rates on its loans.
Meanwhile Barclays increased lending by another £1.1bn in the three-month period, while the Nationwide drew down another £500m from the scheme and upped lending by £1.2bn.
Smaller players also raised lending levels – Tesco Bank by £558m and Virgin Money by £561m, for example.
The FLS gives banks cheap funding in the hope that the lend more on to households and firms. It is skewed towards helping small firms as the amount of funding banks can access next year is based on lending this year, with SME lending favoured.
But although lending is still falling, Bank officials insist it is successful.
“The record of the first year of the FLS needs to be judged against a worse outlook for lending a year ago,” said Andrew Bailey last night. The top official expects lending to flatted off and then start rising this year.
“This compares with an expectation prior to the launch of the FLS that net lending would decline,” he said.