Bank stands ground in lending row

NationwideThe Bank of England was put on the defensive once more over demands forcing lenders to boost their balance sheets after delays to Nationwide's small business banking launch were linked to the new rules.

Britain's biggest building society is understood to have put on hold plans to lend to small and medium-sized enterprises (SMEs), with a report in the Financial Times suggesting the move comes as it battles to meet tougher requirements for it to hold more capital as a buffer against financial crises.
Nationwide revealed plans to enter the SME loans market last year, where lending has shrunk as banks retreat and demand wanes.

At the time chief executive Graham Beale described it as a "natural extension of what we can do".
But the Prudential Regulation Authority (PRA) recently demanded Nationwide draw up plans to plug a hole in its balance sheet by bolstering its leverage ratio, which measures its capital as a percentage of its assets, to 3% by the end of 2015.

The group is now having to be more selective in how it invests in the business, according to the FT, and has instead chosen to focus on boosting its share of the current account market.

It is reportedly unlikely to launch a full SME service before 2016, dealing a blow to Government plans to unblock the credit logjam to small firms.

Nationwide played down suggestions of a delay and said it had never put a timescale on the launch.

A spokesman said: "We have previously said that it is our strategic intention to enter the SME banking market and that we will do this at the right time for the society and our members. That remains our intention."

In a terse statement, the Bank said "we completely refute" any suggestion that Nationwide's decision to hold off from a launch into the SME sector is due to its demands on capital strength.

A spokesman added: "The plan agreed with Nationwide to meet the 3% leverage ratio in 2015 will not result in them restricting lending to the real economy.

"Therefore it is wrong to blame their SME decision on the regulator."

Business Secretary Vince Cable last month stoked tension with the Bank of England by comparing policymakers to the Taliban over the tougher capital rules.

He said its demands that banks must boost the levels of capital they hold is deterring small business lending and holding back recovery.

Mr Cable said: " One of the anxieties in the business community is that the so-called 'capital Taliban' in the Bank of England are imposing restrictions which at this delicate stage of recovery actually make it more difficult for companies to operate and expand."

The Bank has also been embroiled in a spat with Barclays over the rules after the lender's chief executive Antony Jenkins suggested the group may be forced to "restrict" lending to meet the stringent new demands.

Barclays has since backed down, insisting on unveiling a £5.8 billion investor cash-call last month to boost its reserves that the action would not impact aims to increase lending to businesses and households.

Nationwide boss Mr Beale has previously criticised the Bank's leverage ratio rule as a "crude instrument which will be a constraint for low-risk lenders (and) too lenient for high-risk lenders".

Weeks later the building society was given vital breathing space by the regulator on meeting the tougher standard, when the PRA approved its capital-raising plans and gave it until the end of 2015 to increase its leverage ratio from 2%.

At the time Nationwide did not say how it will bolster its capital levels, but its plans do not involve raising extra funds from investors.
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