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Lloyds taps £20bn of Bank of England funds to boost profits not lending

Iain Withers
Lloyds bank - PA Wire/PA Images

Britain's biggest mortgage lender Lloyds has been accused of “immoral” behaviour for using billions of pounds of cheap central bank funding to boost profits rather than increase lending.

The high street bank has been the biggest user of a £140bn Bank of England fund launched after the Brexit vote to boost the supply of cheap funding to the real economy.

Lloyds has “maxed out” what it can draw under the Term Funding Scheme (TFS), having borrowed £20bn of the £100bn lent so far.

Yet, unlike most rivals, Lloyds has cut back its lending to consumers and businesses, reining in net lending by £5.5bn since the scheme launched in August 2016. 

The next largest user of the scheme, RBS, has borrowed £14bn but increased net lending by £15.1bn in the same period. Across the scheme, net lending is up £60.4bn, Bank figures show.

Bank of England

Lloyds has booked £6.3bn in cumulative quarterly pre-tax profits, with analysts noting these have been “enhanced” by use of the cheap TFS funds. Ian Cass, of the Forum of Private Business, called it “immoral” for Lloyds to take billions of pounds of central bank support and not increase lending. 

Bank governor Mark Carney launched TFS, then worth £100bn, alongside a cut in the Bank Rate to 0.25pc. He said funding would be offered at close to the rock-bottom rate to ensure lenders could “pass through the cut to customers”. Ian Gordon, analyst at Investec, said Lloyds’ use of TFS had “enhanced” its profits, but added: “In its defence the scheme was designed to neutralise the effect of the rate cut.” TFS makes up a small proportion of Lloyds’ overall funding mix.

A large part of the net reduction in lending over recent months was the result of the bank approving fewer mortgages in the wake of the Brexit vote.

A Lloyds spokesman said TFS “alongside other sources of funding” had helped it provide “competitively priced funding whether that’s helping first time buyers or small businesses”.