From the TUC

Funding for (not) Lending: How the banks are (not) spending the money

29 Aug 2014, by in Economics

Yesterday the Bank of England issued statistics on the Funding for Lending scheme (FLS), introduced in July 2012 against the backdrop of failing growth in the UK and the debt crisis in the EU area.

The FUNDING part was that banks could take up loans from the central bank at preferential rates (it’s far more complicated than this, involving Treasury bills, collateral, allowances, and all sorts; hopefully this crude characterisation is not too misleading. If you really want more – see the official documentation.)

The LENDING part was that these terms were even more preferential if the participating banks in turn made loans to households and businesses.

Then in November 2013, against the backdrop of a revival in the housing market, the Bank of England and Treasury announced that for the next stage of the scheme – the ‘FLS extension’ – the even more preferential rates would apply only to lending to businesses, and even moreso if they were SMEs (small and medium enterprises, widely understood as starved of lending).

The new statistics tell us what has happened over the first half year of the extension. 

‘Total outstanding FLS drawdowns’, i.e. the stock of bank borrowing from the FLS net of any repayments, was £45.7 billion. The majority of these were accounted for by three institutions:

  • Lloyds Banking Group: £14bn
  • Nationwide Building Society: £8.5 billion
  • Barclays: £12 billion

Of the total drawdowns, £5.3 billion was added under the 2014 extension scheme: £3.2 billion in Q2 which was up on £2.0 billion in Q1. (And £4 billion of this was down to Lloyds.) (We should note too that not all banks participated in the original scheme, and some original participants dropped out of the extension, not least Barclays.)

So that’s the funding. What of the lending?

Since the extension, there has been none. In aggregate terms participant banks’ net lending to businesses over the same period has been negative – i.e. repayments have outstripped new lending – by £6.6 billion. And this is the case to both large corporations and SMEs.

While a number of institutions show small, positive net-lending positions, with Santander ahead of the pack at £386 million (and more than half of that going to SMEs). Busy Lloyds took the prize for lending to SMEs ay £920m over this year, but this is dwarfed by repayments of £5.2 billion from larger corporations.

Conversely RBS Group taken the wooden spoon for withdrawing £1.1 billion of lending to SMEs, with Nationwide and Clydeside not far behind, both at £0.9 billion.

On a longer view, the decline in (participant and non-participant) bank lending to companies has continued pretty much uninterrupted by the introduction of the FLS (chart below); the first positive growth rate in May 2014 has so far proved short-lived, and even then the quarterly FLS figures suggest it was not down to participant banks.

Bank lending to companies, annual growth, month on a year ago

 chart 

OK so this stuff is not a barrel of laughs, but it is worth keeping an eye on (or trying to) how banks and building societies are repaying the largesse of HMT and the Bank. On the basis of these figures they are not it seems. That said, perhaps the purpose of the scheme was more the funding than the lending, to help keep the banks’ balance sheets in order (or maintain a pretence of orderliness?).  Even then we have to ask whether this is the best use of any such largesse.