HIGH street banks cut lending to non-financial companies by another £1 billion last month despite the Bank of England-backed Funding for Lending Scheme.

The British Bankers Association said companies continued to repay much more than they borrowed in September, suggesting conditions remain tricky in credit markets.

The figures cover the second month of the Funding for Lending Scheme. Ministers hope this will encourage lenders to make much more money available to firms by giving banks access to cheap official funding.

However, following a £1.5bn net repayment in August, non-financial firms have repaid £2.5bn since the scheme's launch.

While the net repayment in September was lower than the £1.7bn average in the previous six months, the data may stoke concern about the effectiveness of the latest in a series of official attempts to breathe life into credit markets.

Non-financial companies have made net repayments in eight of the past nine months.

In its Credit Conditions survey, the Bank of England said the overall availability of credit to the corporate sector remained unchanged in the third quarter. The BBA numbers will concern the SMEs thought to have been hit hardest by moves by banks to rein in lending to boost balance sheets.

Last month the Federation of Small Businesses in Scotland expressed concern the Funding For Lending scheme's design may only reduce costs for businesses already deemed credit-worthy, rather than expanding the pool of businesses to whom the banks will lend.

Howard Archer, chief UK economist at Global Insight, said: "The ongoing drop in lending to non-financial companies in September reported by the BBA was disappointing even allowing for the fact there is low demand for credit and many companies are looking to pay down debt."

He added: "The BBA data add to the evidence there has been no immediate major pick-up in lending to companies from the Funding for Lending Scheme."

The BBA insisted: "Over time the Funding for Lending Scheme will improve lending conditions although it is too early to measure any impact yet."

The BBA reported what Mr Archer called a modest £155 million increase in unsecured consumer credit in September. Mortgage approvals rose to 31,175 in September from 30,683 in August but were down 6% annually, from 33,171 in September 2011.