Sector sceptical at government funding scheme
By Hannah Jordan Tuesday, 17 July 2012
The Treasury and Bank of England funding intiative aimed at kick-starting UK bank lending has been met with scepticism following its official launch
The £80bn Funding for Lending Scheme (FLS), which was initially unveiled last month, allows banks to access funds at below market level interest rates subject to them expanding their own lending levels and passing on low rates to borrowers.
For every £1 of lending made by participating banks and building societies to UK households and businesses they will be eligible to access £1 of low rate funding from the scheme. But if lending levels are reduced banks borrowing from the FLS will be forced to pay higher fees to use the scheme.
From 1 August, for a period of 18 months, banks can take loans for up to four years from the FLS, which is funded by UK Treasury bills. Each bank can borrow up to 5% of its stock of existing loans to the UK non-financial sector. The price of borrowing will depend on its lending levels with those mainaining or expanding lending over the next 18 months paying 0.25 per year on the laon.
It is the latest attempt by the government to inject confidence into the UK’s ailing economy by encouraging banks to lend to businesses, particularly SMEs. In June business minister Vince Cable announced that £100m would be made available to SMEs through alternative lending streams over the next two years.
However following the FLS's official unveiling this week financial organisations remained sceptical with the HSBC almost immediately announcing that it would not take part in the scheme at all, instead preferring to fund through its deposits.
Director at brokers Compass Business Finance Jamie Nelson told PrintWeek he had serious reservations.
"I don’t think the cost of lending is the primary concern in the market at the moment that is stopping people from investing – borrowing costs are the lowest they have been for a long time. This is more of a credit issue," he explained. "I think what we have seen with HSBC is very telling. There is no confidence in the market."
Nelson said the scheme may help to fund some markets but he doubted it would work in the print market.
"Is a bank going to lend a printer £1m based on his account and credit worthiness? At the moment probably not. There is simply no confidence in the print market to invest and no confidence among the banks who have a culture at the moment of protecting their capital and being risk averse," he added.
Director of print funding firm BPFL Murray Booker said: "There are existing organisations that are actively still lending in print. These are the people that need help. Banks have their own agenda and I don’t think lending to SMEs, which the majority of print businesses are, is high on their priority list." Tweet
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