Bank of England stands ground in lending row

It was reported that delays to Nationwide’s small business banking launch had been linked to the new rules.

Britain’s biggest building society is understood to have put on hold plans to lend to small and medium-sized enterprises (SMEs), with a report in the Financial Times suggesting the move comes as it battles to meet tougher requirements for it to hold more capital as a buffer against financial crises.

Nationwide revealed plans to enter the SME loans market last year, where lending has shrunk as banks retreat and demand wanes.

At the time, chief executive Graham Beale described it as a “natural extension of what we can do”.

But the Prudential Regulation Authority (PRA) recently demanded Nationwide draw up plans to plug a hole in its balance sheet by bolstering its leverage ratio, which measures its capital as a percentage of its assets, to three per cent by the end of 2015.

The group is now having to be more selective in how it invests in the business, according to the FT, and has instead chosen to focus on boosting its share of the current account market.

It is reportedly unlikely to launch a full SME service before 2016, dealing a blow to Government plans to unblock the credit logjam to small firms.

Nationwide played down suggestions of a delay and said it had never put a timescale on the launch.

A spokesman said: “We have previously said that it is our strategic intention to enter the SME banking market and that we will do this at the right time for the society and our members. That remains our intention.”

In a terse statement, the Bank said “we completely refute” any suggestion that Nationwide’s decision to hold off from a launch into the SME sector is due to its demands on capital strength.

A spokesman added: “The plan agreed with Nationwide to meet the three per cent leverage ratio in 2015 will not result in them restricting lending to the real economy. Therefore it is wrong to blame their SME decision on the regulator.”

Business Secretary Vince Cable last month stoked tension with the Bank of England by comparing policymakers to the Taliban over the tougher capital rules.