Low-cost loans supplied by the Bank of England have “rigged” the lending market in favour of the largest banks and have broken competitors, trade bosses have warned.
Smaller gamers stated the Bank’s bid to spice up lending through the pandemic will harm competitors within the sector after funding help shut out non-bank and fintech lenders.
Threadneedle Street was warned it was distorting the market by offering low-cost loans to banks and constructing societies by means of the Time period Funding Scheme, however not extending the assistance to smaller rivals deemed extra dangerous.
“We’ve seen through the crisis that the system is very much one that is rigged towards the banks, which have access to virtually free money, whereas obviously the non-banks don’t,” stated Christian Faes, boss of LendInvest and the Digital Finance Discussion board, a bunch of fintech lenders.
He stated that non-bank lenders “will be key to helping the economy recover from the crisis” as a result of they have been important to underserved clients.
These non-traditional and specialist lenders present mortgages, shopper finance and enterprise loans worth billions of kilos yearly, changing into a significant a part of the market up to now 10 years.
Simon Goldie, head of asset finance on the Finance & Leasing Affiliation, stated: “In a crisis situation, providing government funding to just one segment of lenders distorts the market.”
Banks and constructing societies can entry funding at near the Bank’s document low base price of 0.1pc by means of the Time period Funding Scheme, which supplies lenders an incentive to maintain supplying credit score to the economic system. Talks to offer non-bank lenders oblique entry to the scheme collapsed in the summertime.
Non-bank lenders don’t derive their funding from bank deposits, however from capital markets and the wholesale market. They have been locked out of their typical sources of funding when the pandemic struck.
Their entry to funding has improved since spring, however these non-traditional lenders are nonetheless deprived by the Bank offering ultra-cheap funding to greater rivals.
“Since March, we have been arguing that the only way to level the playing field is to give non-bank lenders access to direct funding,” stated Mr Goldie. “We are increasingly seeing some recognition of the crucial role that non-lenders play in the market but this has to convert into action.”
The Bank of England declined to remark.