Britain's biggest retail bank Lloyds said on Monday it was on course to beat its own target of lending 1 billion pounds ($1.5 billion) to UK manufacturers before September 2013.
Lloyds, which is 39 percent owned by the British government, said it had lent 700 million pounds to manufacturers in the past six months, following the launch of its 'Manufacturing Commitment' last September.
"We have already seen a great appetite from manufacturing businesses that want to invest and expand even in these uncertain times," David Oldfield, head of SME and mid-market banking at Lloyds, said in a statement.
Lloyds is using the Bank of England's flagship Funding for Lending (FLS) scheme to offer firms a 1 percent reduction in the interest rate for new business loans. The offer applies for the full term of the loan and to businesses of all sizes.
The scheme was launched by the central bank and finance ministry last June to aid growth by offering banks cheap funds if they stepped up lending to home-buyers and small and medium-sized businesses.
However, it has failed to stop an overall decline in bank loans. Although banks and building societies have drawn down almost 14 billion pounds of cheap central bank funds, net lending has gone into reverse. In the last three months of 2012, Lloyds' cumulative net lending fell by 3.1 billion pounds.
Like other British banks, Lloyds is under pressure from lawmakers to increase lending but faces a difficult juggling act as it must also strengthen its financial position to meet tougher demands from regulators.
($1 = 0.6586 British pounds)
(Reporting by Matt Scuffham; Editing by Catherine Evans)