Average rates of bank loans to NFCs and SMEs*Following the example of the Term Funding Scheme (TFS) introduced by the Bank of England (BoE) in the summer of 2016, the Term Funding Scheme Small and Medium-sized Enterprises (TFSME) announced in March 2020 aims to support the supply of loans to businesses via a four-year refinancing program granted to credit institutions at a lower rate than that of the main refinancing operations[1]. Unlike the TFS, the TFSME more specifically targets the financing of small and medium-sized enterprises (SMEs).
Above all, operational since April 15, the scheme resulted in GBP11.9bn drawdown from credit institutions on 27 May and already came with a significant drop in average borrowing rates of the all private non-financial companies (SNFs), and even more so in the case of SMEs. And this to a much greater extent than that observed after the launch of TFS. The explanation for this difference is multifactorial. The TFSME intervenes while the BoE makes greater use of its monetary policy tools with a drop in the key rate from 0.75% to 0.10% (vs from 0.50% to 0.25% in 2016) and the expansion of its asset purchase program by GBP200bn (vs GBP 70 bn). It is also taking place in an environment marked by falling sovereign rates, and concomitantly with government guaranteed loan programs.
