The Funding for Lending scheme is coming under attack again!
Originally designed to increase access to finance and help businesses with their funding problems, it seems to be having the opposite effect, official figures from the Bank of England have just confirmed.
On the positive side, the cost of borrowing is falling and their have been some notable successes in bolstering capital supplies to Banks in need.
- Total lending to banks under the Funding for Lending scheme since it was launched in August 2012 has been £16.5bn with net lending falling by £1.8bn, equivalent to 0.1% of total loans.
- Net lending fell by £2.4bn in the last quarter of 2012 against the previous quarter.
- Net lending fell by £300m in the first quarter of 2013.
The cost of business finance
One of the positive effects of the FLS is that funding costs have been driven down. On Radio 5 Live Peter Ibbetsen from RBS confirmed that funding costs were averaging 3.88%, the lowest he had seen in 40 years of banking! He also confirmed that the FLS enabled banks to make advances without any set up fees. I can confirm from a recent case with a client that this is the case.
Barclays and Nationwide have increased their net lending significantly, by £6.8bn and £4.8bn respectively.
Of the smaller banks, Tesco Bank, Virgin Money and Coventry Building Society have increased their lending by more than £1bn each. Aldermore borrowed £475m from the scheme and lent £710m!
It is worth making the point that the smaller and newer banks do not have the legacy issues pre financial crisis and that the FLS is very good for them in expanding their lending book. This obviously doesn’t apply to Barclays, but as we all know they didn’t take state aid back in 2008/9 instead sourcing additional capital from the Middle East!
Lloyds borrowed £3bn from the scheme and reduced total lending by £6.6bn.
RBS borrowed ££750m and reduced total lending by £4bn
Not a coincidence that these banks were seemingly the worst affected by the financial crisis and are both in effect under state control following the taxpayer bailouts.
Winners and losers
Santander borrowed £1bn and reduced total lending by £8.6bn!! From my own experience in the UK Santander are still very much open for business, so is this a consequence of their weakened Spanish parent demanding that its overseas operations accumulate as much capital as possible?
The Co-Operative Bank borrowed £900m in the three months to 31st March 2013 and reduced its lending by a small amount. However the Co-Op had some well publicised problems during the period and we have to ask the question if this money has in effect kept them afloat?
An interesting statistic shown up in a recent NFIB survey shows that a large number (over 60%) of businesses, DON’T want to borrow money. As per previous articles we believe this has become a self-fulfilling prophecy, with banks making access to finance more difficult and many businesses experiencing some form of difficulty (hence needing the finance), feel that they will be rebuffed by the banks, and therefore don’t bother applying
So it seems that whilst the FLS has not had the effect of increasing business funding, there have been some successes, and you have to ask the question as where we would be without it?
Finding alternative funding
If the continuing lack of availability of funding is affecting your business, please contact us. We are specialists in this field and can hopefully point you in the right direction.
As always, if you have any comments or any of your own experience you would like to share on this subject, please contact me at firstname.lastname@example.org or on 0845 689 8750.
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