British chancellor issues warning to banking sector to lend more

07:48, August 02, 2010      

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British Chancellor George Osborne issued a warning on Sunday to banks in Britain to increase lending to small- and medium-sized enterprises or to face action from the government.

"The big question is where we are next year. That is where I am focusing my efforts and energies. Our addiction to debt -- household debt, banking debt, government debt -- has got to come to an end. And that is not an easy thing to happen, like breaking any addiction," Osborne told the Sunday Telegraph in an interview.

"Households are slowly paying down their loans and the Government -- now post-budget -- has got a plan in place to reduce its deficit and the same thing is happening in the banking sector. My priority is to make sure that small- and medium-sized businesses are not innocent casualties of this process and that the finance is in place to allow them to restock and to grow in the recovery," he said.

Osborne fears the recovery, boosted in the second quarter of this year by better than expected growth figures in the economy, could come unstuck if banks hold on to their money and do not lend it.

Osborne said "Every small- and medium-sized company that I have visited in recent weeks has had some problem with their bank -- either they have found it difficult to renew their overdraft or they demanded additional collateral, often someone's house.

"The danger is that particularly next year, when there is a huge amount of refinancing required, that the small- and medium- sized businesses suffer from a lack of access to working capital."

Osborne said he and business secretary Dr Vince Cable had come up with plans to deal with the financing problem.

"The good news is that we are on the case and we have identified the problem and we are quite advanced in some of the solutions. There is not one answer to this. There is not a silver bullet that solves all the problems," the chancellor said.

Osborne said he could encourage new entrants into the banking sector to create "much more" competition for existing banks. He said "We have got to be pretty clear with the banks, as I was when I got them into my office a couple of weeks ago, that we will not tolerate banks piling the pressure on the small- and medium-sized businesses. They have an economic obligation to assist that sector and give it all the assistance that they got."

Osborne issued his stern warning as British banks prepare to announce their profits. The past six months are expected to have been profitable, with analysts expecting combined profits of more than 8 billion pounds (12 billion U.S. dollars) for the period.

Two of Britain's largest banks -- the Lloyds Group and Royal Bank of Scotland (RBS) -- have significant state-owned stakes, having been saved by government intervention at the height of the global financial crisis.

RBS is 83 percent state-owned, while Lloyds is 41 percent state- owned. RBS is expected to report profits of about 100 million pounds (about 150 million U.S. dollars), while Lloyds is predicted to show a profit of about 800 million pounds (about 1.2 billion U. S. dollars).

While this is good news for the taxpayer and for the Treasury, it also leaves the government with a political problem. Businesses and individuals will call for increased lending, and the government will be expected to take action. Should executive pay and bankers' bonuses be felt to be too large by the public, then the government may well feel it has to intervene through extra tax or a cap on pay and bonuses.

Osborne also hinted that lending targets for the banks could be introduced if they fail to provide enough in loans.

Osborne's call comes only a few days after he jointly launched a government green paper with Business Secretary Cable, which also looked to banks to increase lending.

Source: Xinhua


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