LEEDS Building Society has revealed it recorded a net increase in lending in the third quarter of the year as the Bank of England’s Funding for Lending Scheme got underway.
The Funding for Lending Scheme, which opened at the start of August, offers banks cheap finance if they in turn lend on to households and businesses, and is aimed to boost the economy in ways that the Bank of England’s £375bn of quantitative easing bond purchases has failed to.
Leeds Building Society, which accessed £100m through the Funding for Lending Scheme, has reported a net increase in lending of £212m in the three months to the end of September.
Banks and building societies drew down a total of £4.36bn from the Bank of England programme to boost lending in its first two months, in what analysts said was a moderately encouraging start.
But total net lending by the banks involved rose by only £496m in the three months to the end of September. However, the Bank of England’s executive director for markets, Paul Fisher, said it was too early to use the data as a guide to the scheme’s success – a view largely shared by economists.
Paul Riley, group treasurer at Leeds Building Society, said: “When you look at the net lending numbers, we have contributed strongly. During the past 18 months, we have agreed new mortgages totalling £2bn, well above our natural market share, and we intend to continue to grow our business organically.
“Whilst it is early days for the scheme, we have strong lending aspirations and will use the Funding for Lending Scheme to draw down more funding to support it. This means that we will be able to help first-time-buyers onto the housing ladder and even more borrowers achieve their goal of home ownership, which we see as an important contribution to supporting home ownership, the housing market and the wider economy.”
Leeds Building Society has assets of £10bn, as at 30 June, 2012, and 67 branches throughout the UK, Gibraltar and Ireland. The society has operated from the centre of Leeds since 1886.
Commenting on the Funding for Lending Scheme earlier this week, Alan Clarke, an economist at Scotiabank, which is not directly involved in the scheme, said take-up had been “encouraging”. But he added: “Quite whether it kick starts the chain reaction that is required to get the economy going is less clear. Nonetheless, it is a case of so far so good with regards to the take-up of the scheme.”
Economists estimate that banks and building societies can access just under £70bn of cheap funding via the Funding for Lending Scheme, and they have until the end of January 2014 to do so.
The Bank of England and the government say a lack of lending is partly responsible for Britain’s very slow recovery from the 2008-09 financial crisis, though the unwillingness of lenders to invest in an uncertain economic climate is also a factor.
Net lending figures since the scheme’s launch vary widely across major British banks.
Barclays was the only one to report an increase, with an extra £3.8bn of lending. Santander and state-backed Lloyds Banking Group and Royal Bank of Scotland reported net falls of £3.5bn, £2.8bn and £0.6bn respectively.
RBS said its fall in lending was mostly due to it scaling back commercial property loans, while Lloyds said it intended to draw down an extra £2bn of funds to support small business and mortgage lending.
The National Federation of Small Businesses said it was concerned that it would be home-buyers not businesses who got the bulk of the benefit of lower interest rates and increased credit availability.
Some analysts said the more visible impact on mortgage lending to date is because business lending has longer lead times.
The Bank of England expects it to be six to 12 months before the the Funding for Lending Scheme’s full benefits are clear, though others are more critical.
“There is a deep tension at the heart of the government’s policy mix, where banks have to be less leveraged and at the same time lend more,” said Darren Sharma, chief executive of credit analysts Frontline Analysts.
“The FLS is a considerable improvement on (previous government lending scheme) Project Merlin, which was flop, but it remains fundamentally limited in what it can achieve.”