Banks 'lending more to business'

The Bank of England is as yet unconvinced that banks are lending enough

Banks are lending more to small businesses, according to the British Bankers' Association (BBA).

Lending to small businesses rose by £287m in April from the month before, up from an increase of £271m in March, including overdrafts, the BBA said.

"The High Street banks' support for the small business sector continues to rise," said the BBA's David Dooks.

But the deputy head of the Bank of England warned that many businesses were still facing a lending squeeze.

"It is unclear... whether the financial system can generate the expansion of credit that will most likely be necessary to support recovery," Mr Tucker said in a speech to the Association of British Insurers.

Hoarding warning

The BBA said 48,000 new small businesses banking relationships were established in April, down from 52,857 the previous month.

Deposits from small business to banks rose by £119m in April, a huge drop from £881m deposited in March.

The Bank of England's Paul Tucker, who is in charge of financial stability, warned that banks should not hoard cash in anticipation until they are sure that the worst of the recession is over.

"There cannot sensibly be free-riders," he said.

"If all banks were to adopt such a strategy, recovery might end up being anaemic at best, which would feed back into the banking system itself - increasing defaults and depleting banks' capital."

Mr Tucker said it would difficult to know if banks were truly lending more to small businesses until later in the year.