Page last updated at 09:14 GMT, Wednesday, 3 December 2008

Merging banks to help small firms

The black horse sign is displayed outside a branch of Lloyds TSB in Bristol
Lloyds TSB and HBOS are in the process of merging

Lloyds TSB and HBOS, which are in the process of merging, have both announced packages to help small businesses.

Lloyds has a new six point charter that includes promising to pass on future interest rate cuts to its customers with turnover below 1m a year.

Bank of Scotland, part of HBOS, wants 250m of funding from the European Investment Bank to allow it to lend to small businesses at discounted rates.

The proposed merged group would take 17bn of government bail-out funds.

Last week, the other big recipient of governmennt funds, Royal Bank of Scotland, guaranteed overdraft rates and contracts for its business customers for at least a year.

Interest rate measure

Lloyds is also promising not to change overdraft terms during the term of a company's agreement, which is usually 12 months, and will not change the terms on renewal unless the company's risk profile has changed.

It will agree to any reasonable request for short term financing and will host business advice seminars around the country.

Both Lloyds and Bank of Scotland have committed themselves to keeping business borrowing rates linked to the Bank of England base rate and not to Libor, which is the rate at which banks lend to each other.

Bank of Scotland says it will not make overdrafts repayable on demand.


It comes as reports suggest the Queen's Speech on Wednesday will include a new statutory code of conduct on bank lending.

This, it is suggested, will require lenders to give customers specific notice if they plan to withdraw or alter credit and leave banks open to fines if they do not treat customers fairly.

And a proposed Banking Reform Bill would include measures to allow the Bank of England, Treasury and FSA to intervene earlier to prevent another bank crisis.

The bill was introduced early and has already started its passage through Parliament, with some reports suggesting it will include extended powers to take other financial businesses into public ownership.

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