Bank of England denies its rules forced Nationwide into business lending delay

Threadneedle Street rebuts suggestion that Nationwide's decision was due to capital strength demands

The Bank of England has denied that its insistence on Nationwide holding a bigger capital cushion had forced the UK's largest building society to slow its launch of small business lending.

Nationwide admitted plans to expand lending to small- and medium-sized enterprises (SMEs) are unlikely to take effect until 2014 at the earliest.

It said plans to begin lending to smaller firms were still under development but "moving slowly"; , it denied a report that it had shelved a planned launch date for later this year.

A spokesman for Nationwide said: "We are building our expertise in this area and hiring people experienced in working with SMEs. These things are happening, albeit they are moving slowly."

The Bank of England rejected any suggestion that Nationwide's decision to hold off from a launch into the SME sector was 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."

The lender's slowness to offer loans to SMEs will disappoint ministers concerned that small firms continue to be starved of credit.

Nationwide's entry into the market has been seen by business secretary Vince Cable as a way to increase competition and break the dominance of Lloyds and Royal Bank of Scotland.

However, regulators warned the lender had rapidly expanded its mortgage business while still wrestling with an overhang of bad commercial property loans.

Nationwide says its plans to expand lending to small businesse are unlikely to take effect until 2014 at the earliest.
It was rebuked in July by the regulator, the Prudential Regulatory Authority (PRA), for running an aggressive lending policy without adequate reserves to insure against a possible collapse.

Analysts at credit ratings firm Standard & Poor's followed with a warning that a doubling in the losses on commercial property loans to £450m weakened the lender's financial position.

S&P downgraded Nationwide's credit rating this month and signalled that further downgrades could follow without a rapid improvement.

"These impairment charges have hindered Nationwide's internal capital generation. As a result, we have revised down our assessment of its risk position to 'adequate' from 'strong'," it said.

The lender revealed plans to enter the SME loans market last year, where lending has shrunk as banks retreat and demand wanes.

At the time boss Graham Beale described it as a "natural extension of what we can do".

A Nationwide 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."

He said the lender was unable to give an official launch date.

"We have never talked about it being this year, just sometime in the future. We have never committed to a date."

The spokesman was reacting to a report in the Financial Times that a planned launch later for this year had been scrapped.

The newspaper said it understood that a service offering loans to SMEs was unlikely to be ready before 2016.

Article Source : http://www.guardian.co.uk

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