U.K. Banks Urge Government to Broaden Scope of Lending Program

U.K. banks are urging the government to broaden the Bank of England’s Funding for Lending Scheme to include more collateral and additional companies to increase credit.

The program, introduced last August, could allow access to regulated firms and those whose parent companies have banking licenses, British Bankers’ Association Chief Executive Officer Anthony Browne wrote in a letter yesterday to U.K. Business Secretary Vince Cable obtained by Bloomberg News. Cable had asked for ways to enhance the plan in a meeting with the BBA on March 13, according to the letter.

Under the program, banks have been able to borrow treasury bills from the central bank to fund lending and have 18 months to use the facility and as long as four years to repay. Only banks with access to the discount-window facility can use the program, which accepts the same collateral. The flow of net lending shrank by 2.4 billion pounds ($3.6 billion) in the fourth quarter, and Bank of England Governor Mervyn King said on March 6 that results from the plan were “disappointing.”

“Banks across the spectrum firmly see that FLS has fulfilled its purpose in easing funding/liquidity in the market for both participating and non-participating players and in allowing a price benefit to be passed to businesses and households,” Browne said in the letter. The lobby group canvassed members to provide ideas and “increase its impact,” he said.

‘Take Time’

Some of the funding could be allocated to Capital for Enterprise Ltd., a government-owned fund management company, or other government programs such as the Business Finance Partnership and Business Bank, the BBA said.

Lloyds Banking Group Plc (LLOY) and Banco Santander SA (SAN) led a drop in U.K. lending in the fourth quarter as the Bank of England said its credit-boosting program will “take time” to feed through to loan growth.

Net loans at Lloyds plunged by 3.1 billion pounds in the period. Aggregate drawdowns by banks from the program were 9.5 billion pounds in the fourth quarter, pushing the total to 13.8 billion pounds since it began.

Banks with so-called non-core loans they are seeking to sell or not renew, such as Lloyds and Royal Bank of Scotland Group Plc (RBS), could have those assets omitted from the net lending figures, the BBA said.

The ideas represent a range of views from its members and not all agree with each one, the lobby group said.

-- Editor: Jon Menon

To contact the reporter on this story: Howard Mustoe in London at hmustoe@bloomberg.net.

To contact the editor responsible for this story: Edward Evans at eevans3@bloomberg.net

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