LENDING to businesses by the major UK banks tumbled again in May, industry figures show.
The British Bankers' Association said yesterday that lending by the main high-street banks to private non-financial businesses fell by £1.7 billion in May on a seasonally adjusted basis. This followed a £1.8bn drop in April, and was in line with an average monthly fall of £1.7bn in the six months prior to May.
The issue of whether falling lending to businesses is principally because of supply or demand factors has been a hot topic of debate between businesses and banks.
The BBA highlighted factors which it believes are limiting demand for borrowing from small and medium-sized enterprises (SMEs) and from larger companies.
BBA statistics director David Dooks said: "SMEs' use of their own high levels of cash resources and large companies' use of alternative finance mean demand for bank borrowing is subdued and a reflection of challenging trading conditions."
The latest BBA figures would appear to cast further doubt on the extent to which the Bank of England and UK Government's Funding for Lending scheme is boosting lending to businesses. This scheme, launched last summer, offers funding to banks at below-market rates, with financial incentives to encourage them to lend.
Bank of England chief economist Spencer Dale told the Treasury Select Committee yesterday that the Bank wanted stronger net lending to small and medium-sized firms, but believed the Funding for Lending Scheme had been successful.
He said: "To be clear, we want net lending to SMEs to be growing more than it currently is ... but, relative to what we had feared a year ago, the lending performance, even to SMEs, is better than we would have feared."
Mr Dale added: "I think, if anything, we have been surprised by how little banks have actually borrowed from the Funding for Lending Scheme, and I think that in part reflects the success of the scheme. The scheme has helped to bring down funding costs more generally and for many banks the cost of borrowing from us via the Funding for Lending Scheme is not materially lower."
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