Banks ignore Bank of England Funding for Lending Scheme

ONLY one lender made use of the Bank of England’s Funding for Lending Scheme in the third quarter of this year, new records have revealed.

Aldermore, the Reading-based bank which specialises in small- and medium-sized enterprise (SME) lending, was the only lender to make use of the scheme between July and September of this year, withdrawing a total of £70m.

In early September, Aldermore reported a boost in new lending during the first three quarters of the year, thanks in part to its use of the Funding for Lending Scheme. Between January and September, the bank generated £2.3bn in new lending, up 20 per cent from £1.9bn the previous year.

The Funding for Lending Scheme was introduced in 2014 to encourage banks and building societies to take advantage of cheap money from the central bank and pass the savings on to SMEs by offering better deals on business loans. However, it has seen mixed success, despite a recent extension to maintain the scheme into 2018. Under the terms of the scheme banks are able to borrow up to five per cent of their lowest cost of funding as long as they can either maintain or expand net lending. The low uptake suggests that bank lending may be contracting, while separate research has exposed the difficulties faced by SMEs seeking funding from traditional lenders.

Earlier this year, research from Close Brothers found that almost half of the UK’s SMEs have had trouble accessing finance from high street banks, while the C2FO Working Capital Outlook Survey found that almost one in five (18 per cent) of Europe- and US-based SMEs had turned to P2P platforms for funding.