UK bank lending to small firms up 700 mln stg in third quarter

(Adds details on individual lenders, background)

By Steve Slater

LONDON, Dec 3 (Reuters) - British banks lent 700 million pounds ($1 billion) to small businesses under the government's Funding for Lending Scheme (FLS) in the third quarter, a 75 percent increase from the prior quarter in loans intended to help drive economic growth.

FLS was launched in mid-2012 to provide cheap money to banks from the Bank of England (BoE) and was amended in 2014 to focus on small business lending. The BoE last week extended the scheme for another two years as credit conditions for small businesses had not improved enough.

Banks and building societies taking part in the scheme have now drawn down a total of 63.6 billion pounds. The net drawdown, after repayments, was 26.2 billion at the end of September, of which Lloyds Banking Group (Other OTC: LLOBF - news) accounted for 16 billion.

The third-quarter increase is up from a 400 million pounds in the second quarter and mostly reflected more lending by state-backed Lloyds and Royal Bank of Scotland (LSE: RBS.L - news) .

Net (LSE: 0LN0.L - news) lending by Lloyds was 313 million pounds in the third quarter and by RBS was 276 million, the BoE data showed on Thursday. New (KOSDAQ: 160550.KQ - news) bank Aldermore was next highest, increasing net lending by 85 million.

The biggest contraction in lending to SMEs was by building society Nationwide, which reduced lending by 216 million pounds. ($1 = 0.6703 pounds)

(Editing by Sinead Cruise and David Holmes)