Banks making it harder and more expensive to borrow is the dominant force in falling lending to households and businesses, according to the Bank of England. The finding contrasts with claims by senior bankers that much weaker lending reflects less demand for credit.

Lending to the non-bank private sector has slowed dramatically during the recession and its aftermath, prompting concerns that a lack of access to credit could hamper the recovery and prolong the downturn in the housing market. Read more

August saw a large reduction in debt repayments by individuals and businesses in the UK, which caused net lending figures to rise, according to the Bank of England. This is likely to be temporary, as further data suggest net lending declined again in September.

Net lending to businesses in August increased for the first time since February – by £0.3bn. This number – the difference between gross lending and repayments to lenders – reflects repayments falling more quickly than gross lending, which also fell on a quarterly basis. Businesses have been keen to repay their debt – to reduce leverage, perhaps, or to reduce the debt stock that will need refinancing for smaller businesses.

A similar picture is painted for secured lending to individuals. Net lending in August rose significantly – by £1.7bn – but other data suggest the net flows fell again in September. Again, the net figure does not suggest an increase in lending: gross lending remains broadly unchanged and even fell slightly, but repayments increased. Indeed, “household demand for secured lending for house purchase was reported to have fallen unexpectedly in 2010 Q3, according to the Credit Conditions Survey, though demand for buy-to-let investments rose slightly for the first time since 2008 Q3.” Read more

Ralph Atkins

Financial market tensions are serious – but not yet acute. That is clear from today’s offer of seven day dollar funds from the European Central Bank in conjunction with the US Federal Reserve. Demand was precisely nil – as it has now been in four of the six such offers since they were re-introduced at the start of May. (At the first and third $9.2bn and $5.4bn were taken.)

One reason is that the interest rate agreed with the Fed is high (1.17 per cent in today’s offer). But the lack of demand also shows that, in spite of apparent difficulties obtaining dollar liquidity, eurozone banks are not having to grab whatever they can. Jean-Claude Trichet, ECB president, last week said it was good that the facility existed. “If it is not utilised, that is also good because that means that there was no need for it.” Read more

European Bank of Reconstruction and Development shareholders have chosen to increase the Bank’s capital by 50 per cent to €30bn. Expecting “continued high demand for the Bank’s investments,” governors have approved the measure, setting the scene for more investment over the next five years. Indeed, investments from 2010 to 2015 are expected to exceed all investments made since the Bank’s inception in 1991 (see chart).

€9bn of the additional €10bn funds will come in the form of ‘callable capital’, making this decision essentially a pledge by the 63 owners to cough up the cash should they need to. More than 50 per cent of current subscriptions come from six countries: US, France, Germany, Italy, Japan and the UK. Read more

Credit to household and non-financial corporations continues to shrink in Ireland.

Private-sector credit declined by €3.2bn in January. Last year, most of the declines were explained by debt revaluation. Not this year. The €3.2bn is transactions related – i.e. the difference between repayment and draw-downs. Read more

Lending levels may be too high in aggregate, but farmers aren’t getting enough of the pie. So says the Chinese central bank, which has called for financial innovation and increased levels of rural lending.

Banks should issue more microloans to farmers to foster rural industries and urbanization, said Liu Shiyu, deputy governor of the People’s Bank of China. Rural credit co-operatives, village banks, microcredit companies and new types of financial institution should all be used to help rural development. Read more