UK's Cable: Lending Scheme May Need Tweaks

U.K. business secretary Vince Cable said on Monday he intends to meet Bank of England officials to discuss how a program aimed at boosting the supply of credit can be improved following "very disappointing" lending data.

Mr. Cable told the British Broadcasting Corp. in a radio interview that the U.K.'s Funding-for-Lending Scheme, or FLS, has yet to show it can improve the supply of loans to businesses.

"It isn't yet countering the very negative trend, the very conservative lending patterns that the banks in general are promoting in relation to business," Mr. Cable said.

The minister added that the government is hoping to help tackle the problem by boosting competition in the banking sector and nurturing alternative sources of finance for small and midsize firms starved of credit.

The shortage of lending in the U.K. is "a fundamental problem and it dates from the fact that several years ago the banking system virtually collapsed--it caused enormous damage," Mr. Cable said.

The BOE said earlier on Monday that banks cut back lending in the U.K. in the final six months of 2012 despite tapping the FLS for 13.8 billion pounds ($20.7 billion) of cheap funds earmarked for making loans.

Lloyds Banking Group PLC (LLOY.LN), a lender 39% owned by the taxpayer after a bailout in 2008, drew GBP5 billion from the BOE facility in the second half of 2012 but shrank its loan book by GBP5.6 billion. Mr. Cable told the BBC the fall in net lending by Lloyds was "hard to fathom" and he's "very disappointed" by their figures.

A Lloyds spokesman said that the lender was cutting its loan book as part of wider effort to slim its balance sheet. The lender has cut interest rates for small and medium business loans.

Royal Bank of Scotland Group PLC (RBS), 81% state-owned, tapped the BOE for GBP750 million but cut lending by GBP2.4 billion. An RBS spokesman said that the bank has cut interest rates to small businesses and that the numbers reflected efforts to shrink other parts of its loan portfolio.

The U.K. unit of Spain's Banco Santander SA (SAN.MC) took GBP1 billion from the scheme in 2012 but cut net lending by GBP6.3 billion.

In contrast, Barclays PLC (BARC.LN) drew down GBP6 billion and increased lending by GBP5.7 billion. The Nationwide Building Society dished out a net GBP3.6 billion in new loans after tapping the BOE for GBP2 billion.

A clutch of smaller banks, including a unit of retail giant Tesco PLC (TSCO.LN) and new entrant Metro Bank, expanded their lending significantly in the final six months of 2012.

Max Colchester contributed to this article.

Write to Jason Douglas at [e-mail]

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