LONDON (Reuters) - New British bank Shawbrook has lent more than 1 billion pounds ($1.6 billion) since its launch two years ago, it said on Monday, showing that challengers are emerging to break the dominance of Britain's biggest banks.

Shawbrook is looking to pick up business as established banks shrink their balance sheets and build up capital to meet future regulatory requirements.

The bank, which made an underlying profit of 2.6 million pounds last year, said it had lent over 766 million pounds to small firms and almost 369 million pounds to individuals.

"While the (established) ... banks continue their long struggle to address deep-rooted issues, we've been able to enter the market and appeal to increasing numbers of customers who are looking for something different - a bank that wants to lend, rather than claims to lend," said Chief Executive Ian Henderson.

Data from the Bank of England this month showed Britain's flagship 'Funding for Lending' scheme failed to boost lending in its first year, with net lending by banks down 2.3 billion pounds in the year to June.

Britain's biggest banks blame a lack of demand from small businesses reflecting a lack of confidence in the country's economic prospects but Henderson disagrees.

"Supporting SMEs lies at the heart of our business and demand continues to be very high," he said.

($1 = 0.6415 British pounds)

(Reporting by Matt Scuffham; Editing by Elaine Hardcastle)