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Asset Protection Scheme has not encouraged lending, says NAO

The Treasury’s Asset Protection Scheme, which was designed to enable the Government to protect UK financial institutions against future credit losses, was only “partially successful”, according to the National Audit Office.

In a report published today, the NAO says one of the key aims of the scheme, encouraging lending to credit worthy individuals, only partially succeeded. Both banks in the scheme rreached their targets for mortgage lending but not for business lending.

The scheme, which was launched in January 2009 and protects £280bn of RBS’ assets, looked to increase lending by providing a safety net to UK institutions. By doing this the Government also hoped to breed confidence in the participating firms and the wider UK economy.

The Royal Bank of Scotland and Lloyds Banking Group agreed in principle to participate in the APS in February and March 2009 respectively. LBG paid £2.5bn to exit the scheme in November 2009 and instead raised additional capital from shareholders.

As part of the scheme, RBS and LBG agreed lending targets. The NAO report says while both banks met targets for mortgage lending, there was a shortfall of £30bn against targets for lending to businesses.

NAO head Amyas Morse says: “The Asset Protection Scheme has helped the Treasury achieve its primary aim of maintaining financial stability and preventing the huge economic and social cost of the failure of a major UK bank. However, there has been only partial success in one of the Scheme’s subsidiary goals, encouraging bank lending in the UK.”

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