UK bank lending plummets by £300m

According to an article in The Sunday Times on 18th August 2013, many companies are still nervous about overstretching on loans. Lending by British banks fell by £300M in the first three months of 2013, despite attempts by the Government and the Bank of England to encourage lenders to make more loans.

Taxpayer-backed lenders Lloyds Banking Group and Royal Bank of Scotland recorded some of the biggest declines in net lending, with Lloyds shrinking its loan book by £983m in the first quarter, while RBS saw its lending fall by £1.6bn.

The overall fall in net lending comes despite the launch of the Government’s flagship Funding for Lending Scheme (FLS) last year that was intended to encourage banks to provide new loans to smaller businesses and homebuyers in return for access to cheap funds.

At the end of March 2013, the outstanding balance of FLS funds drawn down by banks stood at £16.5bn. Barclays has been the largest user of the scheme overall, with outstanding funds withdrawn of £6bn.

“It is a concern that lending continues to contract despite the Funding for Lending scheme having been in place for nearly a year. It is also worrying that usage of the scheme seems to have dropped significantly since the end of 2012,” said John Longworth, director general of the British Chambers of Commerce.

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