Lending to businesses continues to shrink

Banks and building societies participating in the Funding for Lending Scheme (FLS) shrunk net lending by £300m in the first quarter of the year, although the pace of lending decline eased from three months earlier.

Part-nationalised Lloyds Banking Group lent almost £1bn less during the quarter, despite having borrowed £3bn from the Bank of England and Treasury scheme.

Taxpayer-backed Royal Bank of Scotland also shrunk its net lending by £1.6bn in the quarter, but has borrowed £750m from the scheme.

Clydesdale and Yorkshire banks reduced net lending by £371m, according to the Bank of England.

The central bank said lending to homeowners has been positive but continues to fall to business. It added it will “take time” for the scheme to feed through to bigger lending volumes.

The Leeds and Skipton building societies increased mortgage lending in the period, but the Yorkshire marginally cut back.

The British Bankers’ Association (BBA) said the FLS has cut the cost of borrowing for businesses, and companies remain reluctant to borrow because of the tough economy.

“In difficult economic times businesses are choosing to pay down debts,” said a spokesman for the BBA.