Regulation  

Modest Q2 rise but £20bn FLS black hole remains

Commentary on the latest Funding for Lending Scheme numbers, published today (2 September), has inevitably focused on the modest rise in net lending of £1.6bn in the second quarter of 2013, with others highlighting lender parsimony towards the UK’s small businesses population.

What is forgotten in much of the reaction is the stark picture it paints of overall lending since the scheme was launched more than a year ago in the summer of 2013.

According to revised figures that now take account of a new institution joining the scheme and providing restrospective lending data, Q2 2013 is now the only quarter in which growth has been recorded in the four that have passed since FLS was launched. A £900m positive net lending figure for Q3 2012 has now been revised to zero; already negative figures of -£2.4bn and -£300m for the subsequent two quarters have been revised down further to -£2.9bn and -£1bn.

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Net lending in the UK is therefore £2.3bn lower overall. This is despite lenders having an outstanding balance under the scheme of £17.6bn, leaving a gap of almost £20bn between the amount handed out by the central bank and the amounts that have been lent by banks net of repayments they have received.

Even in Q2 2013, the £1.6bn growth in net lending was significantly less than the £2bn drawn down under the scheme by 18 participants. However, one institution repaid £900m to the Bank, leaving the figures for the three months net positive.

The one additional group that joined the scheme in Q2 2013 takes the total number of participating groups to 41. The Bank of England said that at this point 28 groups have “benefitted from funding under the FLS”.

Emphasising the stark drop off in lending by many of the larger banking groups, last month, Coventry Building Society claimed it had accounted for almost half (47 per cent) of all net mortgage lending - gross lending minus repayments - in the UK during the first half of the year.

Mortgage balances increased by £1.2bn at the Coventry at the start of this year, a performance in stark contrast to that of the market as a whole. This means Coventry now accounts for 25 per cent of mortgage growth in the UK since the start of 2010.

Phil Orford, chief executive of the Forum of Private Business, said: “The appetite for growth is there, but today’s figures suggest when it comes to looking for external finance businesses are simply not turning to the banks, looking to friends and family or seeking alternatives such as asset based finance.”

Craig Donaldson, chief executive officer of Metro Bank, said: “Overall today’s FLS figures are once again disappointing for the industry. Despite a net lending increase in the quarter, overall lending since June 2012 remains flat, demonstrating a lack of commitment from many of the scheme’s participants to use FLS to boost lending to individuals and SMEs.

“However, there does appear to be some light at the end of the tunnel, with several of the banks showing big increases this quarter - ourselves included.”