Data shows the six banks and building societies that used FLS funds sucked a net £1bn out of economy
The six banks and building societies that used a flagship scheme designed to boost lending sucked £1bn out of the economy in the three months to September – including the two bailed-out banks, Royal Bank of Scotland and Lloyds Banking Group.
The funding for lending scheme (FLS) was dubbed a “white elephant” after the first data showed that in the three months to the end of September just £500m of lending was released by all the 35 banks and lenders signed up for the scheme, which was launched in the summer.
But only six banks and building societies actually used any funds from the FLS in the three months to the end of September and their net lending – which takes account of loans being repaid – was negative by £1bn because customers repaid existing loans faster than new loans were granted.
At three banks more loans were repaid than new ones taken out, leading to negative net lending at Royal Bank of Scotland, 82% owned by the taxpayer, of £642m. Rival bailed-out bank Lloyds Banking Group sucked £2.7bn from the economy during the third quarter while Santander removed £3.4bn.
The biggest injection of credit came from Barclays – at £3.8bn – while Leeds Building Society added £212m and Nationwide Building Society £1.8bn.
RBS insisted that in its “core” business, which is not being run down or sold off, net lending totalled £136m to households and £160m to businesses.
Paul Fisher, executive director for markets at the Bank of England, said it was “too early to use these data as a reliable indication of the impact of the FLS on lending volumes”.
But Christopher Shaw, chief executive of finance provider Platform Black, said: “The choice of name has proved to be unintentionally ironic. The funding is there all right, but there’s precious little lending going on. What launched as the Bank of England’s great white hope risks looking like a white elephant.”
The FLS, launched in August this year, reduces the borrowing costs for banks and other lenders, which are then required to pass on the lower costs to their customers.
Fisher said since its launch there had been “widespread falls in funding costs across different sources and an equally wide variety of lending rate reductions”.
But much of the lending appears to be lowering mortgage rates rather than helping small businesses. The Bank of England’s closely watched agent’s report, released last month, found that lenders were still tightening terms to small and medium-sized enterprises.
John Walker, the chairman of Federation of Small Businesses, said: “What is needed is more competition and choice for small businesses to access finance. Our data tells us that around four in 10 small firms were refused loans in the third quarter and independent data shows that businesses looking for finance for the first time are more likely to be refused. The key reason why, is the scheme does not help firms access credit, it only makes credit cheaper to those successful in their loan applications.”
The call for more competition in small business banking, an area in which RBS and Lloyds Banking Group are the major players, was also made by the EEF, the manufacturers’ organisation.
“Government must also now conduct a focused three-month review on ways of bringing more private competition to bear in UK SME banking, including an explicit switching incentive or, the creation of a standard data portal for new challengers to assess potential new customers” said Lee Hopley, chief economist at EEF.
Hopley called on the government to use its business bank – the details of which are still being worked on – to do more to bolster lending. Labour agreed. Chris Leslie said: “It’s time the government listened to Labour’s calls for a British investment bank that’s properly backed by the Treasury and not just a re-badging of existing schemes.”
The Treasury said it was too early to judge the FLS. The Treasury minister, Sajid Javid, said: “It’s still early in the life of scheme, but funding for lending has already helped to deliver half a billion in loans for households and businesses. Though it will take time to fully feed through, this positive data shows participating banks are increasing their lending.”