Lending to businesses still negative, Bank of England says

UK banks are increasingly lending to UK households through the Government’s Funding for Lending Scheme, but the picture for businesses is not so rosey, figures from the Bank of England suggest.

Net lending to businesses remained negative in the second quarter of 2013, and the growth rate of lending to SMEs was less negative than lending to larger companies.

Participants expanded their loan books over the quarter by £1.6bn.

The Bank said SME credit conditions should be supported by the extension to Funding for Lending, announced in April.

Lending to individuals and mortgage approvals edged up in the second quarter, and is expected to increase further.

Matthew Fell, CBI director for Competitive Markets, said: “The expectations placed on Funding for Lending have run ahead of the realities of business lending.

“Overall lending levels are still subdued, but that’s largely due to business confidence and the fact banks are going through a period of rapid regulatory change. What’s clear is that lending levels could have been hit even harder without this scheme.

“It’s essential that as banks work to meet new capital and regulatory requirements, the Bank of England and regulators give clear and predictable guidance to help smooth the adjustment process.”

Dr Adam Marshall, director of Policy at the British Chambers of Commerce (BCC), added: “Business lending rose in the second quarter, which is good news and will boost confidence. But the credit environment is not where it could or should be, and many dynamic, new businesses are still struggling to find the funds they need to fulfil their growth potential.

“Large and established firms often have little difficulty in accessing the finance they need, yet the acid test for the Funding for Lending scheme has always been whether it can improve the flow of credit to younger, fast growing companies that could end up being the wealth creators of tomorrow. Unfortunately the door often remains shut for many of these businesses who can find themselves being discouraged from applying for finance. Those who do apply are often turned down for being too ‘high risk’.

“A fully functioning Business Bank is essential to plug this gap, but it must be delivered with greater urgency and scale than is currently being proposed by the government. Crucially, the Business Bank must have the ability to work directly with businesses on the ground – not just through the same old high street institutions.”