INSIGHT-Britain's COVID lending schemes risk widening regional divides

* UK Treasury, bank bodies decline to disclose regional
lending

* Business groups say they are 'flying blind'

* Regional business leaders fear falling further behind
London

By Sinead Cruise and Iain Withers

LONDON, July 24 (Reuters) - In the northern English seaside
resort of Blackpool, the family-run Elgin Hotel is preparing to
reopen in August after four months' enforced closure.

The Elgin had a profitable 2019, but bookings so far suggest
that the 89-room hotel yards from the seafront will be less than
half full this summer, as coronavirus concerns deter older
holidaymakers and social distancing reduces capacity.

To help cover lost revenue, the hotel tried to secure an
800,000 pound ($1.02 million) loan under the UK's
taxpayer-backed Coronavirus Business Interruption Loan Scheme
(CBILS).

Owner Nigel Seddon said he had applied to five different
banks offering loans under the government scheme but he's still
waiting to secure the cash he needs, after some lenders said
they could not take on new customers or quoted costly terms he
would struggle to afford.

Seddon fears that if businesses like his cannot tap
sufficient support then deprived towns like Blackpool could fall
further behind London and the comparatively wealthy South East
of England.

"People feel that all the money is being spent down in
London," he said.

Blackpool has struggled since its pre-war heyday when
families flocked to see its glittering night-time
"Illuminations" lightshow and relax on its long, sandy beach.

Several deprived areas of England - some of which voted for
Brexit and switched from supporting the Labour Party to Prime
Minister Boris Johnson's Conservatives in last December's
national election - are now being disproportionately hit
economically by the coronavirus.

Johnson has promised to "level up" regional towns and
cities. Yet a report published this month by The CityUK, a lobby
group, forecast 30% of total lending by UK banks by next March
would be in the capital, followed by 15% in the South East, and
10% in the East of England, with all other regions below 10%.

Industry groups say Seddon's experience is common in some of
Britain's less well-off regions.

Under CBILS launched in March and its sister initiative, the
Bounce-Back Loan Scheme (BBLS), which followed in May, 45
billion pounds of loans have been granted to more than 1 million
small and micro companies to help them survive the pandemic.

But unlike in the United States, where the destination of
around three quarters of the $521 billion lent under its
Paycheck Protection Program has been disclosed, neither the UK
government nor finance industry has divulged exactly where the
money has been lent.

"We're kind of flying blind at the moment ... we are
concerned about regions potentially falling down," said Chris
Wilford, the Confederation of British Industry's head of
financial services policy, pointing to some regions' heavy
dependence on ailing sectors like hospitality and manufacturing.

"If one big business reduces its footprint or goes under in
some of these towns, then that's devastating," he said.

LACK OF TRANSPARENCY

The UK Treasury, which collates data on relief lending,
declined a Freedom of Information request from Reuters for a
regional breakdown on lending under the CBIL and BBL schemes.

It said it recognised a need for transparency regarding use
of public funds but the regional data was supplied by the banks
"in confidence" and disclosure of information "likely to
prejudice the commercial interests of lenders would not be in
the public interest."

Trade body UK Finance also declined to provide the
breakdown.

Only one major lender, NatWest Group, shared a
regional picture of relief lending, defining regions broadly.

NatWest's data as of early June showed 27% of loans in the
North, 24% in the Midlands & Eastern region and 22% in London &
South East. The South West & Wales region and Scotland secured
18% and 8% respectively.

HSBC, Lloyds Banking Group and Barclays
said regional data was either unavailable or
problematic as each lender defined each region differently.

The CBI's Wilford said the group had begun its own research
into how the regions were faring through the COVID crisis, which
would likely examine potential regional or sectoral disparities
in lending and wider cash flow issues.

Business groups from the North East, South West and North
West told Reuters they felt banks were running shy of lending in
their areas, where economists predict far deeper economic slumps
as a result of the pandemic.

Forecasts published by Oxford Economics show economic output
is expected to fall furthest in the West Midlands, Yorkshire and
the Humber, the North East, and Wales in a range of -6.6% and
-5.7% in 2020 compared with 2019 projections.

London's output is seen falling by 4.1%.

Even before the crisis, lending to small businesses in the
North West, where the Elgin Hotel is based, fell 11% over the
three years to December, compared to a 3% fall in London,
according to the latest available data from UK Finance.

Economic growth in the region was also outstripped by London
by three to one, at 10% to 3%, over the three years to
September, latest Office for National Statistics' data shows.

Britain has struggled for decades to find ways of fuelling
regional growth outside London. The government already spends
more than it generates in taxes in every part of Britain apart
from London, the South East and the East, according to a Reuters
analysis of public spending data.

CAN'T BORROW, WON'T BORROW

Naresh Aggarwal, associate director, policy & technical at
the Association of British Treasurers, said any regional lending
bias was unlikely to be deliberate but a consequence of banks'
reluctance to lend to certain businesses, perhaps due to
excessive exposure, which could in turn have a geographic bias.

Others cited poorer banking relationships and a lack of
trust felt by borrowers towards banks, particularly since
lenders had slashed regional branch networks as part of cost
cutting measures since the 2008/09 financial crisis.

"It still feels like there's an institutional bias against
places like Cornwall when it comes to CBILS," said Kim Conchie,
chief executive of the chamber of commerce in Cornwall, one of
the poorest counties in England.

Flagging the battle faced by many businesses to secure
relief loans above 50,000 pounds, many cash-strapped firms had
opted to apply for more modest BBL support instead, he said.

BBL losses are covered 100% by the taxpayer and applications
involve fewer affordability checks than CBILS loans, where banks
remain 20% exposed to defaults.

But some of these borrowers would likely need fresh aid
soon, as other government relief measures such as the Job
Retention Scheme - known as 'furlough' - taper off and deferred
rents and other taxes fall due this autumn.

A survey by the North East Chamber of Commerce (NECC) found
65% of its members had accessed the government's furlough
scheme, yet more than two thirds had not sought a state-backed
loan.

"For the banks, it feels like they want businesses – many of
whom are in a short-term crisis – to prove their ability to
survive over the next five years before they will help," said
Jonathan Walker, the NECC's assistant director of Policy.

"That is of course impossible."

($1 = 0.7872 pounds)
(Editing by Susan Fenton)