Treasury-funded forbearance scheme proposed for non-bank lenders

A second term funding scheme open to non-bank specialist lenders has also been suggested by trade bodies to help lenders in the sector survive the crisis.

This is in addition to proposals that the current Term Funding Scheme for SMEs be opened to non-banks or a new version is established and administered by the British Business Bank.

The details come after UK Finance CEO Stephen Jones revealed yesterday that HM Treasury and the BoE were trying to design a scheme to support non-bank lenders as capital market funding closes.

A statement issued by the Finance and Leasing Association (FLA) today reveals more details about the schemes proposed by the pair, along with the Intermediary Mortgage Lenders Association (IMLA), Innovate Finance, and the Association of Alternative Business Finance.

The two proposals are:

• A term-funding scheme open to non-bank specialist lenders, (NBSLs) funded by the purchase of investment-grade bonds by the Bank of England and supported by bank guarantees to support wholesale funders.
• A Forbearance Liquidity Funding Scheme which proposes that the UK Government provides eligible NBSLs with the liquidity required to fund loans on which forbearance has been provided that would currently fall outside of existing funding lines.

Huge loss to the economy

Desire for the term funding scheme to be extended to non-bank lenders has been well trailed, but the forbearance scheme and second term funding scheme have not been revealed before.

Non-bank lenders in the mortgage market have been particularly badly hit and warnings have been issued across the sector as lenders have been forced to halt new and pipeline applications to tackle the situation.

As part of the statement, FLA director general Stephen Haddrill said: “The non-bank lending sector relies heavily on capital markets and bank funding – two sources of finance which are currently closed.

“The result is that these lenders will not be able to provide new lending as well as forbearance – and when you consider that these finance companies provided £46bn of funding during 2019 to SMEs for business investment and point of sale finance for consumers, that would be a huge loss to the economy right at the point when funding will be needed to help the UK recovery.

“To remedy this, we want to see the Term Funding Scheme opened to non-bank lenders as a matter of urgency, and eligibility criteria streamlined to fast-track firms which are Financial Conduct Authority (FCA) regulated or already part of a British Business Bank scheme.”

Funding markets not working

Yesterday, UK Finance’s Jones told the Treasury Select Committee of MPs that funding models for non-bank specialist finance providers who rely on wholesale funding, were “not working at the moment”.

“We are in very detailed discussions with Treasury and the Bank of England to try and design a scheme that will enable those incredibly important credit transmission mechanisms, often to underserved segments of the consumer and SME markets, to be able to be continue to operate.

“Because we need it to be able to operate coming out of this crisis,” he added.