Page last updated at 17:56 GMT, Monday, 27 July 2009 18:56 UK

Darling seeks more bank lending

Alistair Darling says he wants "to make sure small businesses are getting a fair deal"

Chancellor Alistair Darling has urged banks to lend more to small firms, during a meeting with banking bosses.

"I want to make sure we have a competitive banking system in this country," he said.

In its latest figures, the British Bankers' Association (BBA) said total lending to small companies rose £391m in June, up from May's £133m increase.

But Alistair Darling has said he is "extremely concerned" that banks may be charging firms too much for loans.

The BBA's chief executive Angela Knight has denied this is the case.

However, BBC business correspondent Nils Blythe said that the BBA's statistics had been "misleading" and that lending to non-financial businesses had fallen last month, while the overall lending trend was "emphatically downwards".

Speaking to the BBC, Mr Darling said: "We need to get to the bottom of what is happening with individual banks, to see if loans are being made available and to check that [banks] are not charging more than is justified."

Assessing banks should help ensure there is proper competition, he said, adding that oversight of banks was crucial so that both firms and individuals got the best possible deals.

"We need to make sure that loans are properly priced," he said, but rejected the idea that the government should tell banks how to lend.

Banks 'are lending'

On Sunday, the chancellor said he was concerned that the cost of loans to small firms had risen in recent months, despite the UK's record low base interest rate of 0.5%.

Total taxpayer support for the UK banking sector amounts to around £1.3 trillion... so the taxpayer is entitled to ask a lot from the banks in return
Nils Blythe, BBC business correspondent

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".

However, Ms Knight said the banks could not lend at 0.5% because they had to pay much more than that for the funds they themselves borrowed in the wholesale money markets.

She said the wholesale price of money was about twice the base rate.

"As far as the major banks are concerned they are lending, and increasing their lending," added Ms Knight.

It was right that firms should be able to demonstrate that loans could be repaid before banks would lend to them, she said, adding that loans were assessed on a case-by-case basis, and that some business plans did not stand up to scrutiny

"There will be difficult judgements at the edges and that's why it's important to keep close to the [bank] manager and get that business plan right."

Unfair rates?

Stephen Alambritis, chief spokesman for the Federation of Small Businesses, said the chancellor was "quite right to haul in the banks".

"It is hugely important that Mr Darling keeps tabs on the banks to ensure they are lending money to firms, and at fair rates," he said.

"Firms need to be able to reap the benefits of the historically low base rate."

The British Chambers of Commerce (BCC) said that banks needed to be transparent and open about their approach to lending to small firms.

"It will be business that drives the UK out of recession, but that can only happen if the banks are prepared to play their part," said the BCC's director general David Frost.

"I am still hearing too many stories of small businesses being unable to access appropriate financing."

I have seen my takings reduce by 25% over the last year
Yogesh, London

But shadow chief secretary to the Treasury Philip Hammond said the government should take its share of blame.

"There is no doubt that the banks must take some of the blame for this fiasco but the government cannot escape responsibility either," he said.

"They have been talking about this problem - and claimed on more than one occasion they had a solution - for months now while jobs and businesses continue to be lost.

"Alistair Darling has been asleep on the job and the public will take his synthetic anger with a pinch of salt."

A number of banks have needed emergency funding from the government because of the credit crunch.

These include Lloyds Banking Group, which owns Halifax and Bank of Scotland, Royal Bank of Scotland (RBS), which owns NatWest, and Northern Rock.

Others, such as Barclays and HSBC have not needed any government cash.

NatWest said that it had made £3bn of additional lending available to small and medium firms - and had produced a guide to give firms an insight into what it expected customers to have prepared when they came to discuss getting a loan.

"We genuinely understand the challenges they currently face and we have responded to their feedback," said the bank's chairman of business banking, Peter Ibbetson.

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