Bank loans fall six months into fund aid plan

Tim Wallace
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BANK lending to the private sector plunged again in the final quarter of 2012 despite continued government efforts to pump more credit into firms and households, Bank of England data showed yesterday.

The Funding for Lending Scheme (FLS) offers cheap funds to banks to encourage more lending, but it has so far had only a limited impact.

Banks and building societies have drawn down £13.8bn from the scheme since it launched in August.

However, net lending among the 39 taking part has fallen by £1.5bn.

Lloyds cut lending by £3.118bn in the three-month period and £5.636bn over six months.

The state-backed lender took £3bn from the FLS to boost lending to smaller businesses and cut interest rates, but overall lending fell as it cut in non-core areas.

Similarly RBS’s restructuring saw net lending fall £2.358bn over the six-month period, despite taking £750m from the FLS.

And Santander’s net lending fell £6.308bn over the period, when it took £1bn from the scheme.

“The FLS is not living up to expectations,” said Citi economist Michael Saunders. “The limited impact raises the likelihood of other forms of easing (such as quantitative easing) and additional credit easing.”

But not every participant cut lending. Barclays led the field with a rise of £1.898bn in the fourth quarter and £5.7bn overall from August to December, while it drew down £3bn from the Bank of England.

Some smaller lenders have seen huge increases in credit provision on the back of the FLS cash. Metro Bank hiked lending £93m, or 118.8 per cent, after taking £53m from the Bank.

The Treasury argues the support was always expected to take a few more months to fully work through banks’ pipelines and will become evident in figures for the first quarter of 2013.

Data from the British Bankers’ Association suggests almost 80 per cent of small firms’ loan requests are approved, hinting that low demand led to falling loan levels.