Member Article

?Too early? to assess Funding for Lending Scheme

It is “too early” to measure the impact of the Government’s Funding for Lending Scheme (FLS), according to a review published by the Bank of England (BoE) on Monday.

BoE’s Executive Director for Markets, Paul Fisher, said in a statement alongside FLS statistics that although there have been “widespread falls in funding costs” and a “wide variety of lending rate reductions”, it is too soon in the scheme to assess the effect on lending.

He said: “I am confident that the FLS will help the supply of credit. The incentives in the scheme are for banks and building societies to cut lending rates and hence lend more to get the cheapest funding.”

The scheme was launched in July this year, and a total of 35 lenders have received £4.36bn, which the Government hopes will be passed on to small businesses and first time home buyers to improve borrowing rates and free up credit.

Cumulative net lending from these 35 organisations reached £496m in the first two months of the FLS, however figures released by BoE showed that lending from top high street banks including RBS, Santander and Lloyds, had fallen in the period.

Barclays, on the other hand, boosted lending between July and September, and gave out a cumulative net total of £3.8bn, while Nationwide Building Society lent £1.83bn.

Business lobbyists CBI said the scheme had made positive moves so far, but still had a way to go.

Matthew Fell, CBI Director for Competitive Markets, said: “It’s still early days for the Funding for Lending scheme, but it looks like it has started to make a positive difference to both the cost and availability of finance.

“The sense on the ground is that the scheme has made more inroads in the housing market, so now we need to see a big push so that it makes a difference in the business lending market.

“Raising awareness of Funding for Lending to give firms confidence to approach their banks will be critical to its success. We urge the Government to push ahead with its plans for a business bank, including an advice centre so that SMEs can learn about finance schemes and get the help they need to grow.

“To increase the momentum in the housing market, the Government must focus efforts on implementing the NewBuy scheme, ensuring it has time to bed-in and reach its potential.”

BoE said participating banks and building societies will need to increase lending to get the most from the FLS, and warned that it would take time to feed reduced funding costs through to lending volumes.

This was posted in Bdaily's Members' News section by Miranda Dobson .