The BoE said that 13 of the 40 participants in FLS took £2.6bn in the three months to March 31.
The biggest first quarter decline was seen at Santander where net lending fell by £2.3bn.
There were also contractions of £1.6bn and £983m respectively at state-backed lenders Royal Bank of Scotland and Lloyds Banking Group.
However Barclays and Nationwide grew their figures by more than £1bn during the quarter.
Paul Fisher, executive director for markets at the BoE, said: “It will take time for the improvement in credit conditions experienced since the launch of the FLS to feed through to lending volumes, given the typical lags involved in the loan application, approval and drawdown process.
“Prior to the launch of the FLS in July 2012, Bank staff judged that UK bank lending was more likely to decline than increase over the subsequent 18 months. Net lending is expected to pick up and become modestly positive over the remainder of the year.”
Industry figures have been quick to react to the update.
Peter Rogerson, commercial director, savings and mortgages at Virgin Money, said: "While many other lenders have been shrinking their mortgage books, Virgin Money's book has grown. Funding for Lending was introduced to stimulate lending activity, and Virgin Money is proud to have been the third largest net mortgage lender since the scheme was introduced in June last year. Our draw down of £510m to the end of March represents 30% of our net mortgage lending since June last year, demonstrating our commitment to the mortgage market."
And Stephen Smith, director housing and external affairs, Legal & General Network, added: “Undeniably the Funding for Lending Scheme has had a positive impact on the supply of mortgage finance since its introduction in the summer of 2012.
"We have seen it support what were tentative signs of market recovery at that time and it has continued to underpin the relative resurgence we have seen more recently.
"27 out of 40 participant groups in the scheme have increased net lending in Q1 2013 and the hope is that more will follow suit as the year continues.
"Perhaps most importantly FLS has helped to restore confidence to both borrowers and lenders and confidence is a key commodity in any market.
"However, FLS is ultimately a short term measure and its important that this is seen as the stimulus it is rather than a panacea.“
But some have expressed their disappointment at the decline in lending.
Simon Crone, vice-president commercial, mortgage insurance Europe at Genworth, said: “The latest Funding for Lending scheme update published by the Bank of England this morning makes for disappointed reading.
“Of the 40 lenders now involved in the initiative just over a quarter accessed the funds in the first quarter and this reticence is particularly puzzling given the forecasts for positive lending growth at the beginning of 2013.
“This Bank update shows that despite all the protestations to the contrary lending is still flatlining and lenders – predominantly the banks – remain reluctant to increase their activity and it is borrowers, and first-time buyers in particular, who will continue to suffer.”
