Lloyds, Nationwide Lead Biggest-Ever Rise in Lending Through FLS

Lending through the Bank of England’s flagship credit program increased in the third quarter by the most since it was introduced last year, led by Lloyds Banking Group Plc (LLOY) and Nationwide Building Society.

Lending rose 5.8 billion pounds ($9.5 billion) from the second quarter, the London-based central bank said in a report on use of its Funding for Lending Scheme today. Cumulative net lending turned positive and is now 3.6 billion pounds.

BOE Governor Mark Carney took action last week to restrain a house-price boom by curbing incentives for mortgage lending. Officials also honed the focus of the FLS to business lending, which hasn’t recovered to the same extent as household credit.

“These data show that a significant improvement in credit conditions, aided by the FLS, is now feeding through to lending,” BOE Markets Director Paul Fisher said in the statement. “But credit supply to businesses remains relatively subdued, especially to SMEs. The refocus of the FLS is designed to continue to support the recovery, where it is needed.”

Twenty-one FLS participants drew down a net 5.5 billion pounds from the program, and aggregate outstanding drawings rose to 23.1 billion pounds, according to the statement.

Net lending at Lloyds through the FLS was 3.1 billion pounds, followed by 2.7 billion pounds at Nationwide. Royal Bank of Scotland Group Plc (RBS) lending turned positive, at 245 million pounds, after a drop in the second quarter, while Banco Santander SA (SAN)’s U.K. unit had the biggest decline at 2.1 billion pounds, according to the statement.

Cheaper Funding

The FLS was introduced to boost lending by giving banks the ability to access cheaper funding. The level of funds they could draw depended on how much they were lending to the economy.

Carney said last week incentives for mortgage lending were no longer needed, and that temporary capital relief for new household lending would end at the beginning of next year. Incentives for lending to SMEs would remain.

“Given the access to credit for households now, and particularly for mortgages, it would no longer be appropriate or necessary to have our foot on the accelerator,” Carney said last week. “It’s better to shift into neutral and that’s why these changes for the FLS have been made.”

To contact the reporter on this story: Jennifer Ryan in London at jryan13@bloomberg.net

To contact the editor responsible for this story: Craig Stirling at cstirling1@bloomberg.net

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