By Tom Midlane
Lloyds Banking Group has announced plans to dramatically reduce rates for borrowers after drawing another £2 billion from a scheme designed for lenders.
The Funding for Lending scheme (FLS) was jointly launched by Government and the Bank of England back in August to get credit flowing back into the UK economy.
Lloyds said it had now borrowed £3 billion from the scheme, enabling it to slash the cost of new loans for thousands of borrowers.
However, the bank actually reduced its overall net lending between June and the end of September, figures show.
Lloyds reduced net lending by £2.8 billion in the third quarter of 2013 once loan repayments are factored in, despite withdrawing £1 billion from the FLS scheme during the period.
Executives said that despite the fall in net lending, the bank increased lending to small businesses by 4 per cent over 2012 and it intends to draw a further £20 billion from FLS by the end of 2013.
Antonio Horta Osorio, chief executive of Lloyds, said: "We are passing on the full benefits of funding for lending to businesses and homebuyers as part of our commitment to the scheme and to help foster growth in the economy."
The FLS gives banks access to cheap finance on the condition they lend more to businesses and homeowners, with banks able to access an extra £1 reduced-rate loan from the scheme for every £1 of borrowed money lent out.
However, the scheme also punishes banks that decrease lending, charging them an extra 0.25 per cent for every 1 per cent fall in lending, up to a maximum fee of 1.5 per cent of the original loan.
More than 30 banks have signed up to the scheme, but although only half a dozen had drawn down by the end of September, and of those only three had increased lending - Barclays, Nationwide and Leeds Building Society.