Banks still reluctant to lend

10 February 2010

Banks that have received bail-out support from the government are still unwilling to lend money to businesses, a House of Commons committee has claimed.

According to the Public Accounts Committee, government ownership of some banks has still not resulted in improved rates of lending to small firms.

Despite commitments made under the terms of the Asset Protection Scheme, which saw billions used to support bank balance sheets against credit crunch toxic debts, to boost the levels of lending to businesses, the Committee report suggested that not enough credit is being offered firms.

Edward Leigh MP, the chairman of the Committee, said: "The Treasury does not seem to know why the banks are not lending and has few sanctions available to make them change their minds."

Once new lending commitments are set up in the next financial year, the Committee recommended that the Treasury employ a more exact measure of changes in lending trends to introduce "effective and enforceable sanctions if the banks continue to fall short of their commitments".

The banks maintain that lending has increased but that the rise in borrowing has been more than offset by businesses keen to pay down their existing loans.

The Federation of Small Businesses (FSB) highlighted last year that one in four of its members continue to find it difficult to secure affordable credit.

The Treasury has already taken steps to oblige lenders to produce a consumer charter that clarifies whether more stringent terms and conditions are not dampening demand for business credit. However, the results of implementing the charter will not be fully known until the banks publish their lending results for the first quarter of the year.