Lloyds Banking Group Plc (LLOY) and Banco Santander SA (SAN)’s U.K. unit pared lending in the third quarter, the Bank of England said today as it published the results for the first two months of its Funding for Lending program.
The two banks cut lending by a combined 6.2 billion pounds ($10 billion), central bank data show. Lending by other banks, including 3.8 billion pounds by Barclays Plc (BARC), offset this, leaving total cumulative net U.K. lending up 496 million pounds. The BOE also said banks borrowed 4.36 billion pounds from the FLS up to the end of September.
The central bank and U.K. Treasury started the program Aug. 1 to aid the economy by lowering funding costs and improving the flow of credit to companies and consumers. Based on the stock of loans as of the end of June, banks can borrow an initial 68 billion pounds from the FLS, according to today’s data.
“It is too early to use these data as a reliable indication of the impact of the FLS on lending volumes,” BOE Markets Director Paul Fisher said in a statement. “Since the scheme was announced we have seen widespread falls in funding costs across different sources and an equally wide variety of lending rate reductions.”
Under the FLS, a bank can initially borrow treasury bills valued at 5 percent of outstanding loans, plus any expansion of lending during an 18-month reference period to end-2013. For banks whose lending declines over that period, the fee on their borrowings will increase.
Royal Bank of Scotland Group Plc’s net lending fell by 642 million pounds in the third quarter, while it borrowed 750 million pounds through the FLS as of end-September.
Lloyds has drawn down 1 billion pounds from the FLS. The lender said in a statement it intends to apply to draw a further 2 billion pounds by the end of the year and that it will pass on the discount on those borrowings to customers. Barclays and Santander have also borrowed 1 billion pounds through the plan.
It’s “a case of so far so good with regards to the take- up,” said Alan Clarke, an economist at Scotia Bank in London. “Quite whether it kick starts the chain reaction that is required to get the economy going is less clear.”
The central bank said 35 lenders representing 80 percent of the stock of lending to the economy are participating in the program. Data on Oct. 30 showed 30 lenders had signed up.
“The first FLS figures are a snapshot at the very early stages of the scheme and therefore the full impact is not yet reflected in the net figures,” the British Bankers Association said in a statement. “As the scheme embeds in banks, we should continue to see the scheme acting as a driver for competition, benefiting all borrowers and therefore the wider economy.”
To contact the editor responsible for this story: Craig Stirling at email@example.com