ROYAL Bank of Scotland cut lending to small and medium-sized enterprises by another £737 million in the first quarter under a scheme meant to encourage banks to provide more money for businesses, official figures show.

The figures for the Bank of England's Funding for Lending scheme cover a period during which high street banks including RBS cut new loan funding for small businesses in Scotland by around £30m.

They may trigger fresh questions about the effectiveness of the Funding for Lending scheme and whether state-owned Royal Bank is providing enough support for SMEs as the UK emerges from a long downturn.

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However, Lloyds Banking Group increased its lending to SMEs under the scheme by £540m in the first quarter.

Asked about the figures, Ian Cowie, chairman of SME banking at Edinburgh-based Royal Bank, said: "I think we are doing a good job but we need to do more."

He said demand for lending had been muted for some time. The bank continued to see businesses paying money back faster than it could lend.

However, he said: "RBS is committed to playing its full part in the economic recovery and we are on target to meet our commitment to increase gross lending to SMEs by at least 10 per cent to over £9bn in 2014."

Welcoming signs that confidence levels are growing, Mr Cowie said the bank is positioning itself to give the best support it can to customers.

This includes taking a pro-active approach. He said the bank had had 280,000 conversations with customers in the last 18 months and has been telling clients what they could borrow without waiting to be asked.

Mr Cowie said the review of SME lending that RBS commissioned from Sir Andrew Large last year had been designed to get it to really think about what it could do differently.

The bank has put 350 business specialists into branches to help people, while relationship managers are spending time working in customers' businesses.

He said the bank had tried to make the credit application process easier and faster while sign-posting other potential funding sources.

Mr Cowie spoke at an event supported by Royal Bank in Edinburgh yesterday to bring start-ups together with business angels and the like.

The Federation of Small Businesses in Scotland said the latest Funding for Lending figures reinforced concerns about the design of the scheme, which provides cheap funding for banks to lend on.

Banks reduced lending by £2.7bn in total net of repayments. Lending to SMEs fell by £720m in total and to large corporates by around £2.1bn.

"Market interventions should be targeted at getting affordable finance to those who need it, not getting more credit to a handful of dead certs at a lower rate," said Colin Borland, head of external affiars at FSB in Scotland.

He noted only 12.9 per cent of members who responded to a recent survey said credit availability was good.

Figures compiled by the BBA show high street banks including Royal Bank and Lloyds Banking Group, lent £128m to small businesses in Scotland in the first quarter but were repaid £156m.

The value of loans approved for small businesses fell 26 per cent annually, to £98m, in the quarter.

Banks increased loan funding to medium-sized businesses in Scotland by £81m in the quarter net of repayments. The value of loans approved increased by around a third annually to £313m.

The BBA found banks cut lending to small businesses in the UK by £300m in the quarter net of repayments. Lending to medium-sized businesses increased by £200m.

It noted: "£6.8bn of new borrowing was approved in Q1, 10 per cent more than the same quarter of last year."

Royal Bank increased lending to large corporates under the Funding for Lending scheme by £774m in the first quarter.

Lloyds Banking Group cut ­lending to large corporates by £2.7bn.

It has been cutting its exposure in areas like property.

Clydesdale Bank cut lending to SMEs under the scheme by £450m and to large corporates by £63m.

A spokesman for the bank said it had a strong capital position.

He added: "While we remain supportive of the FLS scheme, our funding is carefully balanced with lending opportunity."