UK banks say do not plan big increase in corporate lending in Q2 - BoE

LONDON, April 3 (Reuters) - British banks do notexpect to be more willing to lend to companies in thesecond quarter despite a probable increase in demand, aBank of England survey showed on Wednesday.

The central bank's Credit Conditions Survey showedavailability of credit for companies increased in thefirst three months of 2013 but was confined to large firmsand the pace of growth was slower than in the fourthquarter.

Banks reported that small companies showed a big fallin demand for credit as the firms worried about a fragileeconomic outlook and that banks had a low tolerance forrisky loans, the BoE survey said.

Banks polled for the BoE's quarterly Credit ConditionsSurvey said they would increase the availability ofmortgages in the second quarter of 2013 after a rise inthe January-March period.

Demand for mortgages increased in the first quarter,albeit at a slower pace than in the previous three months,and was expected to increase significantly in the secondquarter.

The BoE's flagship Funding for Lending Scheme waslaunched last year as the latest attempt to get morecredit flowing into the economy. So far, the scheme hashad more of an impact on lending for mortgages than onloans for companies.

Banks said the FLS helped them reduce borrowing costsfor households and companies and they expected a furthertightening of loan spreads in the next three months, theBoE survey found.