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Minnow societies lent more than banking giants

THE Melton Mowbray and Newbury building societies both lent more to businesses and households net of repayments than the giant Royal Bank of Scotland and Lloyds Banking Group in the last quarter of 2012, official figures show.

The apparent anomaly, disclosed in the latest Bank of England update on the Funding for Lending Scheme, may raise fresh questions about the willingness and ability of major tax-payer-backed banks to support economic growth in the UK.

The 39 banks and building societies that participate in the scheme were repaid £2.4 billion more than they lent in total.

Lloyds Banking Group, which owns Bank of Scotland, recovered £3.1bn more than it lent to households and businesses under the scheme in the three months.

Royal Bank of Scotland was repaid £1.7bn more than it advanced.

Taxpayers own 82% of RBS and 41% of Lloyds.

Clydesdale Bank, a significant player in Scotland, owned by National Australia Bank, was repaid £394 million net.

While the three heavyweights effectively took money out of the economy overall during the quarter to December, some minnows injected funding.

Melton Mowbray and Newbury Building Societies lent £5m and £4m respectively.

Among smaller banks, Aldermore lent £251m net while Metro bank advanced £53m.

Reacting to the latest figures, the Federation of Small Businesses issued renewed calls for the Government to try to boost competition in Scotland and elsewhere.

"In the final quarter of 2012, the three banks which dominate the Scottish small business banking market, RBS, Lloyds Banking Group and Clydesdale, all reduced their lending to businesses and individuals," said Colin Borland, the Federation's head of external affairs in Scotland.

He added: "When the Chancellor delivers his Budget on March 20, we must learn more about the state-backed small business bank and how it will boost Scotland's real economy."

The data also raised fresh questions about the effectiveness of the Funding for Lending Scheme, launched in July last year following repeated claims businesses and homebuyers were being starved of affordable funding. The scheme provides cut-rate funding for lenders.

Describing the update as clearly disappointing, the British Chambers of Commerce, said: "The real test for the FLS has always been whether the funding reaches fast-growing and new firms. The latest Bank of England Credit Conditions Survey confirmed that small firms continue to be left out in the cold."

But both Lloyds and Royal Bank said the picture had been distorted by the big repayments they received in respect of areas now deemed non core. Both have been reducing their exposure to commercial property.

Royal Bank said in the scheme's first six months its core bank increased net lending by more than £1bn. Claiming it was making more credit available to UK SMEs than any other UK bank, RBS said: "We account for 36% of all SME lending, compared to our overall (SME) market share of 24%."

The bank said 16,000 SME customers have saved an estimated £50m funding costs through the Funding for Lending scheme.

It has sanctioned loans totalling around £250m under the scheme in Scotland since Funding for Lending began.

Lloyds said it is continuing to grow lending to key sectors of the UK economy. It increased net lending to SMEs by 4% annually last year.

The bank said: "Between September and December 2012 we committed £11bn of FLS eligible lending through our discounted offers. We have pledged to lend at least £5bn to SMEs in 2013 and we are offering 1% discounts to all SMEs for the life of their loans. We have also promised to lend £6.5bn to first-time buyers."

The bank did not have figures for lending under the scheme in Scotland.

A spokesman for Clydesdale Bank said it only entered the scheme in the fourth quarter. The bank is being reshaped to reduce its exposure to some markets including commercial property. Noting the bank was repaid £23m net in the three months to September, the spokesman said the fourth quarter net lending position reflects the reshaping work. He added: "it's not possible, therefore, to draw lending comparisons at this stage".

Barclays lent £1.9bn net in the fourth quarter.

The British Bankers' Association said: "Business activity is normally subdued at the end of the year and in difficult economic times many households and businesses are looking to pay down debts rather than take on more borrowing."

The Bank of England said: "There are indications of an improvement in credit conditions, with loan rates falling. But it will take time for this to feed through to lending volumes."

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