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.
Why are you making commenting on The Herald only available to subscribers?
It should have been a safe space for informed debate, somewhere for readers to discuss issues around the biggest stories of the day, but all too often the below the line comments on most websites have become bogged down by off-topic discussions and abuse.
heraldscotland.com is tackling this problem by allowing only subscribers to comment.
We are doing this to improve the experience for our loyal readers and we believe it will reduce the ability of trolls and troublemakers, who occasionally find their way onto our site, to abuse our journalists and readers. We also hope it will help the comments section fulfil its promise as a part of Scotland's conversation with itself.
We are lucky at The Herald. We are read by an informed, educated readership who can add their knowledge and insights to our stories.
That is invaluable.
We are making the subscriber-only change to support our valued readers, who tell us they don't want the site cluttered up with irrelevant comments, untruths and abuse.
In the past, the journalist’s job was to collect and distribute information to the audience. Technology means that readers can shape a discussion. We look forward to hearing from you on heraldscotland.com
Comments & Moderation
Readers’ comments: You are personally liable for the content of any comments you upload to this website, so please act responsibly. We do not pre-moderate or monitor readers’ comments appearing on our websites, but we do post-moderate in response to complaints we receive or otherwise when a potential problem comes to our attention. You can make a complaint by using the ‘report this post’ link . We may then apply our discretion under the user terms to amend or delete comments.
Post moderation is undertaken full-time 9am-6pm on weekdays, and on a part-time basis outwith those hours.
Read the rules hereComments are closed on this article