New figures reveal that net lending to small businesses is negative, leading to calls for increased banking competition and the development of new ways to fund financial firms.
Although the Bank of England has poured billions of pounds into the banking sector in the past year through its Funding for Lending Scheme, small businesses are still finding it difficult to gain access to capital.
A week after the Government announced the FLS would be refocused from mortgage lending to small business lending, the last quarterly update revealed the BoE gave lenders £5.5bn from July through September. Since the FLS was implemented in summer 2012, £78bn has been issued for bank use.
“An economic recovery has taken hold. This data shows that a significant improvement in credit conditions, aided by the FLS, is now feeding through to lending. But credit supply to businesses remains relatively subdued, especially to small and medium size enterprises,” said Paul Fisher, Bank of England’s executive director for markets.
Since the FLS took hold in August 2012, Nationwide has issued £9.7bn in loans through the scheme, which is significantly more than any other lender. During the same period, the Royal Bank of Scotland and Lloyds have a negative net lending of £6.5bn and £2.2bn respectively.
While mortgage lending activity has increased, small business lending has contracted, prompting the CBI to openly call for new ways to fund small businesses. At the same time, the EEF has demanded increased competition in the banking sector.
Some economists have been left wondering what the impact of shifting the focus of the FLS from mortgage lending to business lending will be.
Mathew Pointon, property economist for Capital Economics, stated, “We think the direct effect of that action will be rather small. After all, as of the third quarter of 2018, banks had access to over £78bn of undrawn FLS funds, and no lender is close to their allowance limit.”
Net lending by all UK lenders was only £8.7bn in the third quarter of this year, which has led JP Morgan’s Allan Monks to reach the conclusion that mortgage lending would have increased organically without help from the FLS.
Santander stated its £12.5bn negative net lending figure during the FLS era was a direct result of its decision to scale back on mortgage lending and focus on small business lending, leaving many economists and small businesses wondering if lending will in fact pick up in 2018.