LLOYDS became the first bank to use the government’s new Funding for Lending scheme (FLS) yesterday, drawing down £1bn from the Bank of England.
It pledged to lend the money on to businesses and households.
However analysts said they do not expect Lloyds’ overall lending to rise, as the bank is still rebalancing in the aftermath of the financial crisis and its rescue by the taxpayer.
The FLS offers banks cheap funding of up to five per cent of their stock of lending as it stood at the end of June.
If banks increase their total lending they can borrow more and at a lower interest rate. But if they reduce lending, the cost rises.
Lloyds’ chief executive Antonio Horta Osorio said he hopes to access more than this initial £1bn.
“This initial £1bn is just the start. We are committed to helping Britain prosper by encouraging investment and supporting businesses and households with the best possible terms through Lloyds Funding for Lending,” he said.
But analysts do not expect Lloyds to increase lending overall.
“It is good that the average cost of funding is coming down, and we have seen some re-pricing of mortgages offers and SME lending,” said Ian Gordon from Investec. “But Lloyds will remain a negative net lender to the UK market by virtue of its high loan to deposit ratio.”
Other banks have used the existence of the FLS scheme to lower their loan rates, but Lloyds is the first bank to draw down money from the scheme.