No end in sight for long fall in bank lending

 
Tim Wallace
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BANK lending will keep on falling for the foreseeable future, analysts predicted over the weekend, with today’s Funding for Lending Scheme (FLS) data expected to show another drop in the first quarter.

The scheme offers cheap funding to banks in an effort to cut interest rates and increase lending.

However several major banks are still cutting back lending as they restructure in the wake of the financial crisis.

Others have reported low demand for credit as households and firms are worried about the economy.

“The ratio of household debt to disposable income is now about 140 per cent, down from a peak of over 160 per cent, but if the level of about 100 per cent that was seen during the 1990s is the benchmark, there is still some way to go,” said Barclays economist Simon Hayes.

“The government’s fiscal plans suggest the adjustment is less than half done. The cyclical signs may be encouraging, but it is likely to be several years yet before the drag from deleveraging dissipates.”

However banks like Lloyds hope the process will be over in the near future, allowing them to increase lending once more.

Analysts at Morgan Stanley now predict house prices will rise eight per cent in 2013 as a whole, increasing lending and driving up bank profits, aiding a recovery in the sector.