Analysis of the latest data on the Funding for Lending Scheme shows UK Building Societies increased net lending by £5.3bn while only drawing £2.3bn in the second half of 2012.
Fitch Ratings says that usage of the Government’s Funding for Lending scheme is predicted to rise over the course of 2013, particularly since mutuals increased their portfolios last year with “limited use of the FLS.”
This is in contrast to the overall trend, where net lending by all participating institutions fell £1.5bn despite drawdowns of £13.8bn over the same period of time.
Fitch says: “Net customer loans for the seven building societies we rate increased by 3 per cent overall, with only one lender shrinking portfolios. There was wide variation among lenders – Coventry increased loans by around 14 per cent in 2012, while Newcastle shrank them by 8 per cent.”
Lending growth is at risk of being constricted by suggestions of higher leverage ratios. The Banking Standards Commission has proposed the required leverage ratio be higher than the 3 per cent Basel III minimum, a move which Fitch says would be particularly challenging for Nationwide and Coventry who use the internal ratings-based approach.
Economic pressures are forecast to push arrears levels up over the medium term along with a corresponding increase in loan impairment charges.