BoE term funding scheme unlikely to stoke wave of lending, S&P says

The Bank of England´s new financing facility for banks would mitigate some of the negative impact from low interest rates, helping to prop up bank profitability, but it would not be a 'game-changer', especially for the largest lenders, Standard&Poor´s judged.

The Term Funding Scheme, which was set to start on Monday, would allow UK banks to access funds more cheaply than at market rates if they maintained or grew their net lending to British borrowers.

Smaller banks, in particular, were likely to take advantage of the "very favourable" terms on offer from the TFS, S&P said.

At around 0.25%, the cost of TFS funds was considerably below the 1% or more which UK lenders had to pay in wholesale markets or for marginal customer deposits.

"Nonetheless, given other credit supply constraints and seemingly modest credit demand in the UK, we anticipate that the TFS will offer at best a mild fillip to credit expansion in the UK," the ratings agency said.

Those constraints included broader revenue pressures from low levels of client activity and "negligible" loan book expansion.

S&P also cautioned that if lenders´ reliance on central bank funding increased materially then that might be viewed as a weakness from the point of view of that bank´s credit worthiness, as opposed to if it is used more opportunistically.