So the scale of response in the overall flow of credit to businesses depends in part on a wider confidence effect shifting the demand curve. We may finally be seeing that restoration of business confidence in which case the flow of credit to businesses should pick up. Beneath that aggregate narrative, there are some revealing stories in the details. The data we publish each quarter reveal material differences in net lending volumes across participants in the Scheme. The main lenders are in quite different places (Chart 7). For example, 30 out of 41 participating groups have had positive net lending since the launch of the scheme, despite the slight contraction in the aggregate numbers. Together, these groups lent a net £ to the UK real economy, while the eleven groups that contracted their net lending did so by a combined £ That in part reflects a desire by several major UK lenders to reduce the scale of their so-called “non-core” loan portfolios following the financial crisis, or a need to comply with State Aid conditions. So these banks may not see material increases in their total lending, even if they use the FLS to the full to support their core activities. There are other factors at play. For example, nearly half of bank and building society lending to businesses is to the commercial property sector and a good part of the rest will be secured on property. Pre-crisis, banks lent too much money, too cheaply, to too many borrowers, especially in this sector.
And the Bank’s Agents have heard reports of some smaller businesses preferring to seek out non-bank alternatives for finance, including peerto-peer lending, insurance companies and investment funds to diversify their funding sources. So when assessing trends in credit supply, it is important to consider flows of lending from all sources, not just the banks. The extension to the FLS to include lending related to non-bank credit providers (including finance leasing corporations and factoring companies) recognises the importance of some of these forms of lending to SMEs. Finally, there are a number of small “challenger” banks who are successfully using the FLS to help expand and take market share from the more traditional lenders. You sometimes see the phrase “the banks are not lending to SMEs”. That is simply not true when you look into the details. The data on SME lending is not fully comprehensive nor of the best quality. But the data we do have suggest that since the launch of the Scheme, gross lending to SMEs has been around £ although repayments have been slightly higher, so the overall picture of slightly negative net lending is the difference between two much larger numbers. Within that aggregate picture there are many individual banks which have expanded their net lending to SMEs whilst others have contracted. That is partly why I have been advising business contacts to “shop around” for credit if they can.