Small businesses slam banks as lending falls

Paul Fisher talked up Funding for Lending. Picture: Phil Wilkinson
Paul Fisher talked up Funding for Lending. Picture: Phil Wilkinson
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Small businesses rounded on Scotland’s big banks yesterday as it was revealed that lending had nose-dived in the final three months of 2012.

Bank of England (BoE) policymakers came under intense pressure to unleash further emergency measures after the central bank’s own figures showed that net lending in the quarter had fallen by £2.4 billion.

The slide came despite banks and building societies drawing down a further £9.5bn through the flagship Funding for Lending scheme (FLS), which was launched last summer by the BoE and the Treasury. It offers lenders funding at low interest rates on condition it is passed on to households and businesses.

The Federation of Small Businesses (FSB) said it appeared that the scheme was reducing costs for those who would have been given a loan anyway, while failing to extend lending to others.

Colin Borland, the FSB’s head of external affairs in Scotland, said: “In the final quarter of 2012, the three banks which dominate the Scottish small business banking market, RBS, Lloyds Banking Group and Clydesdale Bank, all reduced their lending to businesses and individuals.

“RBS and Lloyds used FLS, yet their loan volumes declined. It is difficult to know what the situation would be without the scheme.

“Encouraging entrants into the small business lending market must be the UK government’s priority, especially in sectors and geographies underserved by their current institutions.”

In a recent speech, Paul Fisher, executive director for markets at the BoE, claimed FLS had shifted the supply of credit, with loans generally available at lower cost than previously.

Other members of the bank’s monetary policy committee (MPC) – which meets this week – have cautioned that the £80bn scheme will take some time to filter down to businesses and consumers.

The CBI said that, depsite the headline fall in lending, there was evidence that the cost of finance was easing.

Chief policy director Katja Hall said: “It’s particularly encouraging to see that several newer entrants have increased their lending, boosting competition and choice in the market. We must remember that the scheme is operating against the headwinds of muted confidence in the economy, which are reflected in the headline lending figures.”

Scotiabank economist Alan Clarke added: “It is not entirely unexpected that lending has gone down. The Bank would say that this is not a bad thing, in the absence of FLS, lending might have fallen even more.”

The BoE said it expected credit conditions to improve over the course of the year and pointed out that net lending had increased £3.1bn in January.

Yesterday’s figures may persuade more members of the MPC to vote for a restart of the Bank’s quantitative easing – or money printing – programme, which currently sits at £375bn.

The committee has held off from making more asset purchases, looking to the FLS to provide a much-needed boost to the economy.

It also emerged yesterday that Britain’s construction sector activity had suffered its biggest fall since October 2009.