Lending under a flagship state scheme in the UK increased between April and June, but small firms remain starved of credit, new figures have revealed.
The Bank of England said 41 lenders participating in its Funding for Lending Scheme (FLS) lent a net £1.6bn during the quarter, the first substantial increase in lending since the scheme was set up last August.
But lending to small and medium-sized enterprises (SMEs) continues to fall, shrinking by a net £583m during the quarter.
The scheme offers banks and building societies discounted loans in return for increasing lending to households and businesses. But, while it has helped slash the cost of home loans, credit to small firms continues to fall.
Nationwide Building Society was the biggest participating lender during the quarter, extending a net £2.3bn.
Lloyds Banking Group also lent a net £1.3bn, reversing a pattern of shrinking loans seen during the prior three months.
Overall net lending by FLS banks since the scheme started remains negative, down £2.3bn on aggregate. Lenders have drawn down a total of £17.6bn from the scheme.
Financial secretary to the Treasury, Greg Clark, said: “The Funding for Lending Scheme has helped to make loans cheaper and more easily available, supporting an increase in lending to the real economy and helping businesses that want to expand and families that aspire to own their own home.”
The increase in overall net lending compares by participating banks and building societies compared with a decline of £1bn in the first three months of the year.
Paul Fisher, executive director for markets at the Bank, said: “The FLS is continuing to support lending to the UK economy with a range of indicators suggesting that credit conditions are steadily improving for households and firms, and FLS participants collectively expect net lending volumes to pick up over the remainder of this year.”
The scheme was revamped in April in a bid to boost the flow of credit to small businesses. But Bank loans to SMEs shrunk 2% during the quarter on a year earlier. The Bank classes SMEs as firms with less than £25m turnover.
Net lending to SMEs fell by £583m during the April to June quarter, and shrunk by £5.2bn for larger businesses, figures showed.
The Bank said this suggests larger firms are turning to other forms of finance, such as issuing bonds.
It added there are signs that the price and availability of lending to businesses is improving, pointing to a survey from the Federation of Small Businesses which suggests loan costs for small firms is improving.
The Bank said: “A range of evidence suggests that credit availability has increased and the cost of credit has decreased for larger businesses.
“The picture for the conditions faced by small and medium-sized businesses is more mixed.”
A Lloyds spokesman said its net lending growth came despite the taxpayer-backed bank running down its portfolio of non-core loans.
He said: “These latest Bank of England figures demonstrate that our total FLS lending is growing, in line with our commitment to support the UK economy.
“This growth comes despite the fact that the Bank of England figures also include our lending to certain ’non-core’ sectors, which we are running down as we focus our efforts on sectors such as SMEs and first-time buyers.”
Part-nationalised Royal Bank of Scotland shrunk net lending by £2.8bn, while lending by Spanish-owned bank Santander fell £1.8 bn.
Santander also repaid £900m of the £1bn it has borrowed from the scheme, saying it is now cheaper to borrow on the wholesale money markets than through the scheme.
Barclays lent a net £668m and Virgin Money lent a net £738m.
Richard Sexton, director of e.surv chartered surveyors, said: “The Funding for Lending Scheme has bathed the mortgage market in cheaper credit, but has left the SME market parched and arid.
“The scheme has done wonders for the housing market, but the main point of it was to provide credit to SMEs, who are starved of funding and can’t grow.”