* Net lending to all business down 3.9 bln stg
* Net lending to small businesses down 0.4 bln stg
* Biggest overall declines at state-backed Lloyds and RBS
* Lloyds was highest net lender to small businesses
* Funding Circle founder says scheme is failing businesses
(Adds Funding Circle comments, bank-by-bank data)
By Matt Scuffham
LONDON, Aug 28 Britain's much-heralded scheme to
encourage banks to make more credit available to households and
businesses failed to boost lending in the second quarter, data
showed, as banks focused on meeting tougher capital demands from
The Bank of England launched its Funding for Lending Scheme
(FLS) in August 2012 as a key part of government efforts to
stimulate the economy, with banks having since drawn down a
total of 45.7 billion pounds ($75.8 billion) of funding.
The scheme was tweaked last November to end incentives for
mortgage lending with the intention of persuading banks to focus
on businesses, but data from the Bank of England on Thursday
showed that net lending to businesses fell by 3.9 billion pounds
in the second quarter of this year, widening from a 2.7 billion
pounds drop in the first quarter..
Lending to small businesses fell by 400 million pounds,
though that was an improvement on a decline of 719 million in
the first quarter.
Britain's biggest banks have cut back on lending and shed
assets to meet tough rules on capital that were imposed by
regulators to prevent a repeat of the 2008 financial crisis.
Banks have also pointed to a lack of demand from borrowers.
"Funding for Lending is failing to help the thousands of
British businesses that need finance but can't access it," said
James Meekings, co-founder of Funding Circle, one of Britain's
biggest online lending platforms.
"Instead, alternative sources of finance, like peer-to-peer
lending, are proving to be a better way for the Government to
get finance through to British businesses," Meekings added.
Fewer smaller businesses in Britain are using traditional
forms of bank financing, such as overdrafts, loans and credit
cards, a survey showed on Thursday.
The data showed that the biggest declines in lending came at
state-backed Lloyds Banking Group and Royal Bank of
Scotland, where net lending contracted by 2.1 billion
pounds and 1.5 billion pounds respectively.
The decline at Lloyds was driven by a 2.45 billion pound
drop in lending to large companies. Lending to small businesses
rose by 384 million pounds, making it the scheme's biggest
provider of credit to small businesses.
RBS, which is majority owned by the British government, cut
lending to big business by 1.13 billion pounds and to small
businesses by 360 million pounds.
The biggest rise in net lending came at Santander UK
, which lent 254 million pounds to businesses, including
an increase of 99 million pounds for small businesses. The
next-highest lender was new bank Aldermore, with net lending
totalling 118 million pounds.
South Africa's Investec Bank increased net lending by 96
million pounds with a 136 million pound increase in small
business lending offsetting a 40 million pound fall in lending
to large companies.
The update covers the first full quarter since the changes
to the scheme took effect in February.
($1 = 0.6026 British Pounds)
(Editing by Keith Weir and David Goodman)