* Scheme to be broadened to include non-bank lenders
* Drawdowns under scheme to be extended one year to 2015
* Shortage of credit blamed for hampering UK's recovery
By Christina Fincher and David Milliken
LONDON, April 23 Britain will announce a
shake-up of its Funding for Lending Scheme on Wednesday in the
hope of getting more credit flowing to small and medium-sized
firms and kick-starting an economy struggling to show any
The Bank of England said it would make an announcement at
0500 GMT. It gave no further details but sources familiar with
the scheme said it would be extended both in scope and duration.
With little room for manoeuvre on fiscal policy and top
officials at the central bank deadlocked over extending their
government bond-buying scheme, Britain's government is pinning
its hopes on alternative means of boosting growth.
The original FLS was launched last August and offers banks
cheap credit if they increase lending to households and
businesses. Results have been mixed with benefits so far mainly
going to banks and homebuyers rather than small businesses.
Finance minister George Osborne is under pressure to find
ways to boost the economy. Last week the International Monetary
Fund added its voice to calls for new thinking to help growth.
Under Wednesday's shake-up, the pool of lenders able to
access cheap funding is likely to be extended to include leasing
firms and asset finance groups which are major sources of credit
for small businesses, the sources said.
Among the changes, big banks will be allowed to lend to such
alternative financing firms as part of credit targets set for
participation in the FLS scheme, one of the sources said.
Also, banks which want to use the scheme may be asked to
spell out how much they are lending to small businesses.
The deadline for funds to be drawn down will be extended by
a year to 2015, sources said.
Brian Hilliard, UK economist at Societe Generale said it was
a sensible idea to target the funding subsidy at the
institutions closest to small businesses, but that lack of
lending was both a supply and a demand issue.
"Expectations should be modest about what it will do for
growth in the short term," he said.
Official data shows that banks and building societies drew
down nearly 14 billion pounds under the Funding for Lending
Scheme between August and December. But overall lending fell -
in part because of seasonal factors, and the desire of some
banks to reduce lending to meet tougher capital rules.
The central bank argues that the scheme is a success, and
without it lending would have fallen by much more. Critics claim
there are better ways to support growth, and a bigger response
is needed to counter the deleveraging being undertaken by banks,
households and the public sector.
British government bond prices underperformed German bunds
after the announcement as investors bet a freeing up of credit
would make a further gilt-buying spree from the central bank
"Better-targeted policies ... naturally means this kind of
credit easing over quantitative easing," said Nomura economist
Non-bank lenders, he said, might be able to make better use
of the scheme since they were less encumbered by bad debts and
onerous capital requirements.
Changes to the scheme have been expected for several days.
Osborne said on Friday he would announce changes to the
scheme "fairly shortly" - in part due to concerns that its
benefits were not reaching small businesses rapidly. And the
trade body for British leasing companies, the Finance & Leasing
Association, told Reuters on Monday it was in talks with the
government about extending the scheme to cover more firms in the