Funding for Lending is flawed, say bank chiefs

The high profile Funding for Lending scheme had wrongly focused on the cost of finance rather than freeing up access to funds, financiers told WM. The warning came as figures showed a sluggish uptake to the scheme, which allows banks to draw subsidised capital from the Bank of England as long as the discounts are passed on to customers. Keith Widdicks, xxxxx and former relationship director at Natwest, said: "Unless banks change their lending criteria then it will have no impact whatsoever. All it's doing is making cheaper finance available for propositions that all banks would support anyway. I don't think it's helping." Aldermore Bank, which is signed up to Funding for Lending, warned the scheme would fail to extend the lending books of the high street banks signed up to the scheme. Rob Lankey, MD of commercial mortgages at Aldermore, said: "I think they will take the funds and use them to reduce their cost of capital. But the problem with the big banks is they are carrying weighty balance sheets. It's a bit like asking a sumo wrestler to run the 100m." Challenger banks like Aldermore would use FLS funds to try and boost the availability of capital rather than pass on discounts, Lankey pledged. High street giants hit back at the claims. Lloyds TSB told WM it had a £1bn manufacturing war chest with a mandate to lend. Richard Holden, head of manufacturing at Lloyds, told WM: "The finance is there for businesses that have the confidence to deploy it." Just 40% of small businesses used any kind of external finance in the third quarter of 2012, according to the latest SME Finance Monitor report. Poor uptake has sparked EEF calls for a three month government review to try to boost competition in SME banking. Don't miss the January issue of WM for a more indepth look at the financial landscape for UK manufacturers.