New data published by the Bank of England has revealed that banks have pocketed approximately £28bn in cheap financing from the government-backed Funding for Lending scheme, as overall net lending finally turned positive for the first time since the scheme began in June 2012.
According to the figures published today (2 December), banks and building societies that took advantage of the programme over the period increased their net lending, the difference between repayments and new loans issued, by £5.8bn for the three months to September 2013.
According to a statement from the Bank of England, 21 participants made drawdowns under the scheme of £5.5bn over the quarter, meaning that banks and building societies increased their lending by around £300m more than they drew down in cheap loans.
The total amount of outstanding drawings since the scheme started in June 2012 rose to £23.1bn, with 33 groups now benefitting from funding under the scheme. With cumulative net lending turning positive for the first time at £3.6bn, this means lenders have actually boosted their balance sheets by around £19.5bn.
However, the Building Societies Association was quick to point out that building societies and other mutuals increased their net lending by £15.7bn over the 13 months covered by the data, having drawn down a little less than £7bn.
This means that despite drawing down more than £16bn, banks that have participated in the scheme have cut their net lending by more than £12bn. Banks have therefore boosted their balance sheets by some £28bn since the scheme began with the help of the cheap loans available.
Total lending by the whole market including non-FLS members was £8.7bn for the third quarter, compared to a negative net lending figures of £3.6bn for the three months to June.
Under the schemes banks can draw down cheap loans from the Bank of England to underpin lending to home borrowers and small and medium-sized businesses.
Last week, amid fears of a bubble in the housing market driven by FLS and the more recent Help to Buy scheme, the second phase of which kicks off in January, the government announced that the mortgage component of FLS would be stopped from January 2014.
Paul Broadhead, head of mortgage policy at the Building Societies Association, warned that while the end of the mortgage component of the scheme would not affect availability of loans, it could cause mortgage rates to increase for clients in 2014.
Both the Bank of England and HM Treasury claimed the scheme had “boosted the economy” and that it was being refocused on small businesses to reflect that the mortgage market, which has recently seen issuance hit five-year highs, is picking up.
Mark Carney, governor of the Bank of England, said at the time: “Over the past year the Funding for Lending Scheme has contributed to the recovery by helping to significantly improve credit conditions, especially for households.”
Commenting on today’s data, Paul Fisher, Executive Director for Markets at the Bank of England, said: “An economic recovery has taken hold. These data show that a significant improvement in credit conditions, aided by the FLS, is now feeding through to lending.
“But credit supply to businesses remains relatively subdued, especially to SMEs. The refocus of the FLS is designed to continue to support the recovery, where it is needed.”
Paul Broadhead, head of mortgage policy at the Building Societies Association, said: “Building societies and other mutual lenders have consistently led the mortgage market this year, helping people to buy for the first time or move house.
“Today’s figures from the Bank of England confirm that mutuals out-performed the rest of the market in the third quarter, doing more net lending but at the same time drawing down less from the scheme than other lenders.
“When the availability of wholesale funding was restricted the FLS provided a welcome stimulus to lenders and lending. Market conditions have now improved, making funding from this source less necessary. It is clear that mutual lenders never became dependent on the FLS.”
