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The Knimbies who say No

F L S 2013 Q1 Update (Released 3Rd June 2013)

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Ok, today sees a quarterly update to the useage data for the "Funding for Lending Scheme" (FLS).

BoE page with simple spreadsheet:

http://www.bankofengland.co.uk/publications/Pages/fls/q113.aspx

There are only three quarters of data present since the scheme was launched back in July last year. The data is consistent with the trends seen in the BBA net lending figs, ie negative.

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The 'Drawing Data' tab shows the following:

T-Bill drawings under FLS (£Millions):

2012 Q3: £4,360

2012 Q4: £9,472

2013 Q1: £2,621

The drawings are then broken down by each participating lender, Lloyds, Barclays did not use the scheme at all in Q1 2013, Nationwide used a third of what it did in the previous quarter, RBS and Santander seem to have only used token amounts in the first quarter of its operation (as much as a billion quid could be described as such...)

Overall, around £16Bn worth of funds have been drawn under the scheme as of end March 2013.

Interestingly I was in a branch of Lloyds, and behind the counter was a large illuminated poster puffing up the FLS, with the Union Jack in the corner presumably to instill a patiotic sense of purpose. Reminded me of "War Bonds" propoganda.

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The second sheet is more interesting as it lists net lending flows to households. The FLS was designed to prevent a drop in net lending, or arrest the decline. It's clearly not possible to say what might have happened without it but I suspect its effect is minimal.

The BBA fiogures have shown declines in net lending recently, and the FLS data is consistent with that. Net lending was negative in the last update for Q4 2012 (-£2,422M)and the latest data shows Q1 2013 is still negative(-£300M), although much closer to zero. The first quarter was the only one to show a positive net lending fgure (£931M), and I remember plenty of VIs saying the scheme would take a while to really get going. Backwards, it seems.

Overall net lending since the scheme started has dropped by £1.79Bn. This is again broken down by lender. The biggest lenders seem to be chartering a course for zero net lending, with some increasing net lending from the negative side (Lloyds, Santander) and some cutting back from a position of positive net lending (Nationwide, Barclays) which approximately balance to leave a small residual negative of £300M overall.

The cumulative net totals for each lender (column 'I') show that Barclays and Nationwide have between them been responsible for much of UK net lending since July 2012, with Lloyds, RBS and Santander reducing their lending the most.

Seems plausible that the media will focus on the reduction in lending to households by the State-backed banks.

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interesting interpretation of the data.thanks for that cheezy

No probs, not sure there's much to say but it's consistent with the BBA drops in net lending.

Here's some emerging comment from City A.M. and the Beeb:

http://www.cityam.com/blog/net-lending-falls-300m-first-quarter-despite-funding-lending

Net lending falls by £300m in first quarter despite Funding for Lending

The Bank of England has reported that net lending has fallen by £300m in the first quarter of 2013, despite the government's Funding for Lending Scheme issuing £2.6bn to banks in the same period.

Net lending is an imperfect measure for the effectiveness of the scheme, as reducing lending costs will not necessarily result in an improvement in net lending. Banks can adjust the lending they issue, but have less control over the repayments they receive.

While gross lending might be a better metric, net lending is the one that has been chosen, and the scheme is failing by that yardstick.

Since the introduction of the scheme £16.45bn has been issued to banks while net lending has dropped by £1.8bn over the same timescale.

Repayments are of course quite low due to rates being on the floor(albeit on bubble borrowings). I guess net lending was chosen because that's what the economy is dependent on- ever increasing aounts of credit.

Mr Fisher is ever the optimist:

http://www.bbc.co.uk/news/business-22752201

Banks cut loans again, in spite of Funding for Lending

UK banks have continued to reduce the amount they lend, in spite of government attempts to reverse the trend.

Latest figures from the Bank of England show that net lending fell by £300m in the first three months of 2013.

However, the figure is a big improvement on the previous quarter, when lending fell by £2.4bn.

The government's Funding for Lending Scheme (FLS), launched last August, was designed to boost lending.

Under the scheme, banks and building societies are allowed to borrow money cheaply from the Bank of England, providing they pass that money to individuals or businesses.

FLS was recently extended by a year, until January 2015.

Pick up

The Bank of England said that banks had borrowed an additional £2.6bn under the scheme in the first quarter, taking the total amount that has been made available so far to £16.5bn.

When FLS was launched, the government said it expected that up to £70bn would eventually be made available.

Which banks are cutting back?
  • Santander -£8.6bn

  • Lloyds Group - £6.6bn

  • RBS -£3.9bn

source: BoE. lending since June 2012

The Bank of England said Monday's figures showed that new lending was coming on stream, as old loans were phased out.

"The picture of flat lending growth overall is broadly as expected at this stage, reflecting reductions in some legacy portfolios being roughly offset in aggregate by expanding new lending," said Paul Fisher the Bank's executive director for markets.

He said he expected new lending to pick up further through the rest of 2013.

Some banks and building societies have increased their loans. Barclays and Nationwide were among the lenders to increase their loan book, while RBS, Santander, and Lloyds reduced the amounts they lent.

HSBC has not taken part in FLS to date, preferring to finance loans from its own resources.

The BBA figs for April show increased new loans but negative net lending regardless.

Edited by cheeznbreed

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True of one-off repayments in the sense that the incentive to pay off borrowings quickly does not exist.

But one of the counter-intuitive effects of v. low interest rates is that because mortgages are on a constant repayment profile, repayments of capital actually rise in the early months of a mortgage.

So the ultra low rates is actually one of the key elements to causing a reduction in net lending in the first place. It is certainly a headwind at any rate.

The BBA figs list repayment of capital since December 2003:

Repayment of capital (£Millions) nsa:

April 2013: £8,311

April 2012: £7,095

April 2011: £6,997

April 2010: £6,527

April 2009: £5,338

April 2008: £13,098

April 2007: £13,101

April 2004: £10,067

Repayments of capital have been rising but are way below bubble levels. It looks like the repayment of capital includes interest payments given the drop from 2008 to 2009, unless there's another explanation. Forebearance will affect this too, but not by that much surely.

Edit- see koala_bear's post #15 below- repayment of capital upon sale is included in the totals so tanking sales volumes = lower capital repayments.

Edited by cheeznbreed

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Telegraph is highlighting the reduction in lending by the State-backed banks:

http://www.telegraph.co.uk/finance/newsbysector/banksandfinance/10095650/Lloyds-and-RBS-cut-lending-to-UK-economy-by-2.6bn-in-first-quarter.html

Lloyds and RBS cut lending to UK economy by £2.6bn in first quarter

State-backed lenders Royal Bank of Scotland and Lloyds Banking Group slashed lending to the economy by £2.6bn in the first three months of the year, despite a renewed push by the Government to boost loans to small and medium sized businesses.

The Bank of England reported a £300m fall in total net lending by banks and building societies taking part in its flagship Funding for Lending Scheme (FLS) in the first quarter, following a net decline of £2.4bn in the final three months of 2012.

The FLS has now been used by 18 lenders for £16.5bn of cheap funding since it was launched last August, as five small building societies joined the 13 lenders that tapped the scheme for £13.8bn in the first five months of its launch.

RBS, which is 81pc owned by the taxpayer, cut lending by £1.6bn in the first quarter, while Lloyds, in which taxpayers have a 39pc stake, cut lending by £983m.

Santander, Britain's third biggest bank by deposits, slashed lending by £2.3bn. In total, the three lenders have tapped the Bank of England for £4.75bn since the launch of the scheme, but cut lending to the economy by £19.2bn over the same period.

All three banks shunned the FLS in the first quarter, despite a change to its terms in April that means high street lenders will be offered £10 of state-subsidised funding for every £1 they lend to small companies this year.

Barclays was the only lender among the "Big Four" banks - apart from HSBC, which is not participating in the scheme - to report an increase net lending in the first quarter. It increased lending by £1.1bn in the first three months of the year, while Nationwide, Britain's biggest building society, increased lending by £1.2bn.

Paul Fisher, Executive Director for Markets at the Bank of England, said the data were unsurprising, and he expected lending to pick up in the second half of the year.

“The picture of flat lending growth overall is broadly as expected at this stage reflecting reductions in some legacy portfolios being roughly offset in aggregate by expanding new lending," Mr Fisher said in a statement. "The plans of the FLS participants suggest that net lending volumes will pick up gradually through the remainder of 2013.”

Analysts said that the improvement in lending trends from the fourth quarter were far from encouraging. “It is a concern that lending continues to contract despite the Funding for Lending Scheme having been in place for nearly a year. It is also worrying that usage of scheme seems to have dropped significantly since the end of 2012," said John Longworth, Director General of the British Chambers of Commerce.

“The real test for Funding for Lending is whether it is able to get credit flowing to young and fast-growing businesses. Unfortunately many of these growth firms are still being left out in the cold when it comes to accessing finance, which prevents them from expanding, creating jobs and helping to drive a business-led recovery."

However, Santander insisted that its lending trends were improving, as Monday's figure compared with a decrease of £2.8bn in the final three months of 2012

"This [Q1] decrease in aggregate lending reflects the on-going rebalancing of the bank as Santander focuses on growing lending to corporates and SMEs, which is significantly more capital intensive than mortgage lending: for every £1 Santander lends to an SME the bank is required to reduce residential mortgage lending by £5," it said in a statement."

RBS insisted it continued to "punch above our weight in terms of lending to UK businesses.

"We have helped over 22,000 SME customers through the Funding for Lending scheme, and we’re making more credit available to UK SMEs than any other bank,” it said.

Monday's data follows Bank figures on Friday that showed net business lending dropped nearly £3bn in April, after a £545m contraction in March.

Lending to smaller businesses shrank by £660m after a £115m fall in March, the biggest drop since December.

Interesting quote from Santander regarding the £1 SME lending means reducing mortgage lending by £5. Take your pick George, house prices or businesses. I think we know the answer..

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No matter what incentives the Government gives the lenders to lend at the end of the day a polished turd is still a turd.......

Banks cannot see the road to so called growth and the Government cannot force them onto what they cannot see.

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I'm confused. They've taken £16bn in cheap debt from the govt, but dropped lending?

I didn't think that was even possible.

Why are HSBC not in the scheme? And why are they increasing lending?

I read somewhere that business were happy with availability and rates, so is it simply that they don't want to borrow?

Hence the only way to keep the debt bubble from deflating is through lending against houses or government.

How is this going to end?

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It's just a bank subsidy. Improves their margins. (and bonuses obviously)

I know of people who have businesses who have been approached to close down their old loan and take down a new FLS backed one in exchange for a cheaper rate - sharing the split with the bank of course.

Ahhhh of course. They've just throw existing loans into the system.

Does this not point towards a drop in inflation (and house prices) in the near future?

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Do you have a link - I'd like to understand that definition.

When interest rates drop, the capital portion in every monthly repayment rises.

There is a formula on excel you can use to prove it to yourself.

Let's say (just for example) that the rates were 10% and the monthly payment £100 pm. The first payments would have very little capital repayment and the back end is mainly capital.

If you raise rates to 12% and the monthly repayment rises to £120 (this is just illustrative note), then if the final monthly payment is mainly capital , it is close to £120....so the earlier months are actually lower. Strange but true.

Sure, it's the BBA "High Street Banking" statistics, the latest set is here:

http://www.bba.org.uk/statistics/article/april-2013-figures-for-the-high-street-banks/high-street-banking/

Table 5(column H) &Table 6(column E) depending on whether you want seasonal adjustment or not.

I think the conundrum with capital/interest is more that the repayment obviously changes with rates, so although the fractions get altered as rates change, the capital repayments ought to remain roughly constant on an absolute basis, with a varying dollop of interest on top. We keep being told that households are furiously repaying debts, but it's not backed by any firm evidence as I see it.

The suppression of rates wheeze, as recorded by the_duke_of_hazard on his thread, is attractive(to politicos) in an environment of receding wages:

At 3%, you'll repay about £1.40 for every £1 borrowed over 25 years, compared with the long-run rule of thumb of £2.

At 2%, this drops to £1.27

At 1%, to £1.13

This is clearly the wheeze to keep prices aloft.

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I'm confused. They've taken £16bn in cheap debt from the govt, but dropped lending?

I didn't think that was even possible.

Why are HSBC not in the scheme? And why are they increasing lending?

I read somewhere that business were happy with availability and rates, so is it simply that they don't want to borrow?

Hence the only way to keep the debt bubble from deflating is through lending against houses or government.

How is this going to end?

Yeah, lending amongst the scheme's participants has dropped on aggregate by £1.8Bn. You're quite right, previous BoE surveys have shown that, on the whole, funding is available at reasonable cost (although what is defined as reasonable in these circumstances is debateable- perhaps better to say 'at historically low' rates)

Q1 2013 credit conditions survey, the summary page confirms your view:

http://www.bankofengland.co.uk/publications/Documents/other/monetary/ccs/creditconditionssurvey130403.pdf

Firms could decide whether to participate or not, HSBC decided not to as they had sufficient funds. They are making noises about increasing lending, but so have plenty of banks, some of which have not done so really.

The Government seems to want the FLS to end up with half the UK on interest only, and the other half on interest free. And few able to afford the headline price regardless.

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Sure, it's the BBA "High Street Banking" statistics, the latest set is here:

http://www.bba.org.u...street-banking/

Table 5(column H) &Table 6(column E) depending on whether you want seasonal adjustment or not.

I think the conundrum with capital/interest is more that the repayment obviously changes with rates, so although the fractions get altered as rates change, the capital repayments ought to remain roughly constant on an absolute basis, with a varying dollop of interest on top. We keep being told that households are furiously repaying debts, but it's not backed by any firm evidence as I see it.

The suppression of rates wheeze, as recorded by the_duke_of_hazard on his thread, is attractive(to politicos) in an environment of receding wages:

At 3%, you'll repay about £1.40 for every £1 borrowed over 25 years, compared with the long-run rule of thumb of £2.

At 2%, this drops to £1.27

At 1%, to £1.13

This is clearly the wheeze to keep prices aloft.

When I previously had look at the BBA stats in depth (and discussed on HPC after noticing the same thing) I discovered that most of the repayment was actually made up of people repaying the mortgage early when they sold the property to someone else (not monthly repayment of capital). As sales volumes have fallen massively so has early repayment and hence the overall capital repayment figures.

Interest is not included in repayment.

Edited by koala_bear

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When I previously had look at the BBA stats in depth (and discussed on HPC after noticing the same thing) I discovered that most of the repayment was actually made up of people repaying the mortgage early when they sold the property to someone else (not monthly repayment of capital). As sales volumes have fallen massively so has early repayment and hence the overall capital repayment figures.

Interest is not included in repayment.

I had a nagging feeling you'd got to the bottom of it, thanks for reminding me. Makes perfect sense.

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When I previously had look at the BBA stats in depth (and discussed on HPC after noticing the same thing) I discovered that most of the repayment was actually made up of people repaying the mortgage early when they sold the property to someone else (not monthly repayment of capital). As sales volumes have fallen massively so has early repayment and hence the overall capital repayment figures.

Interest is not included in repayment.

Would this be caused by foreign cash buyers, which I'd imagine a lot of London is right now.

We've spent years increasing debt to buy stuff from abroad, but now those pounds are coming back and wiping down the debt.

The result is debt deflation? But not how they imagined.

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Top man. Saved me a job.

EDIT: Although I would have thought that the capital portion of monthly payments should be?

Sorry I wrote that in haste (like most of my HPC posts!)

To clarify:

Early repayment: includes all forms except re-mortgaging with the same FI, i.e re-mortgaging every 2 years on cheap deals with a different FI created the largest category of the "repayments" pre '07, (inc probably MEWing at the same time as remortgage, but that is another story).

Probably 2-3 times more effect than actual house sales had on early repayments (which were in turn larger than capital repayments).

People not re-mortgaging from trackers or SVR wit low IRs produced most of the dive.

Normal Monthly payments:

The capital portion of the payment is included in the data, but the interest component is not, I was just trying to say quickly that interest was not included.

Regular monthly capital repayments were a very small part of the total pre '07 (some what due to huge amounts of IO!), now a much larger part of a smaller total.

In some ways the repayments data is proxy for a velocity index, in the mortgage market and partially in the wider economy.

The move away from IO is also helping increase actual "repayments" as monthly repayments have shot up.

We could actually be "repaying" more now than in 2007 despite what the figure say.

Edited by koala_bear

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As a (very rough) example if someone remortgaged every 2 years (pre '07...) on a repayment mortgage they might have paid off ~10k of capital (in 2 years) but when they change mortgage provider (on remortgage every 2 years) they repay ~200k (shrinks over time). If they then flogged the property a the then average of 7 years they might repay £175k (if they haven't MEWed).

In those 7 years the total "repayments" could have been >750k (on a 225k property) but actual monthly capital repayments only 35k... (less than 5%) and we aren't even looking at IO here!:wacko:

Edited by koala_bear

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Interesting comment on the R4 news just after midnight last night on FLS business lending:

As many younger people don't own property (i.e. rent or have virtually zero equity if they have a mortgage) and so have no collateral they are unable to get any business borrowing and hence why the SME lending side of FLS hasn't been doing that well.

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Interesting comment on the R4 news just after midnight last night on FLS business lending:

As many younger people don't own property (i.e. rent or have virtually zero equity if they have a mortgage) and so have no collateral they are unable to get any business borrowing and hence why the SME lending side of FLS hasn't been doing that well.

So does that mean banks think land and buildings are far better security than people and their businesses?....they trust property more to repay the debt. ;)

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So does that mean banks think land and buildings are far better security than people and their businesses?....they trust property more to repay the debt. ;)

Probably more along the lines that you can't run off to Oz with the property if it all goes wrong so they might be left with something to recover with the current way of thinking.

Based on the thinking of the classic Serpico thread that came up again last week:

http://www.housepricecrash.co.uk/forum/index.php?showtopic=35126&st=15&p=444946entry444946

e.g. banks don't like leased property or easily moveable / saleable assets or stock.

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So does that mean banks think land and buildings are far better security than people and their businesses?....they trust property more to repay the debt. ;)

They just want tangible assets for their balance sheets. It's pretty clear that the banks know the score with regard to the shagged state of the economy generally so they are aren't keen to lend to businesses based on some sort of overly optimistic plan for production/profits.

When it comes to generating bank profits, far easier to take the cheap liquidity on offer from the central banks and punt it onto the commodities markets for an almost guaranteed quick profit (since everyone else is doing likewise, inflating the market). Joe Public pays the price quite literally as the cost of everything essential goes up. Nice fat bonuses for the clever traders and banksters for being so good at making money (i.e. taking free money and rolling the dice in the casino that you largely control).

Since the government is utterly fixated on maintaining levels of credit based money in the economy, they must do everything that they can to prop up asset prices otherwise banks won't be able to extend bank credit against them. That means that maintaining la-la-land house prices (in London/SE at least) is a priority. So you get fruitcake tactics like QE, help to buy and FFL aimed at pushing money into the financial system to keep prices inflated.

It's a nice setup if you happen to be in government or in the finance industry, which is why it will continue until the distortions caused by it drive the economy to destruction.

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