Banks meet with Chancellor after loans spat

CHANCELLOR Alistair Darling will today call on UK banks to reduce the cost of loans to small businesses.

At a Treasury meeting this afternoon, Mr Darling will tell the chief executive of banks including Royal Bank of Scotland Group and Barclays that they must do more to help the economy in return for government assistance.

Yesterday he told the BBC he was “extremely concerned” about bank support for smaller companies. “What companies are being charged seems to have gone up relative to what they have to pay,” he said.

He added that banks had a duty to restore lending levels, and that the government did not rescue the banking sector “out of some charitable act”.

But according to the British Bankers’ Association, lending to small businesses rose by £391m in June – a 23% increase compared with the monthly average for the year – while almost 50,000 new small business banking relationships were established.

David Dooks, BBA statistics director, said: “These figures provide more evidence of the high street banks’ support for small businesses. Structured term lending rose by £366m in June, while deposits and numbers of new business relationships continued to hold up, perhaps reflecting improved business confidence in trading conditions.”

The BBA added that capital requirements imposed by the government are twice as high as those of other countries and a higher default risk were pushing up lending costs.

Following a £1.4trn  government rescue, the Treasury took majority stakes in Royal Bank of Scotland and Lloyds Banking Group in addition to nationalizing Northern Rock and Bradford & Bingley after financial turmoil brought the industry near collapse in 2007.