UK banking chiefs will come under renewed pressure to make more credit available to small and medium-sized businesses, as they meet with the chancellor Alistair Darling to discuss the issue this afternoon.

However, the British Bankers’ Association (BBA) has rejected claims made by Darling that banks were charging too much for loans to struggling businesses. The group said that lending to small companies rose £366m in June, up from May’s £133m increase.

The chancellor, who is meeting bank chiefs at the Treasury this afternoon, said yesterday that he was “extremely concerned” that small and medium-sized businesses were still paying too much for bank loans that remain in short supply, despite the base rate remaining at just 0.5%.

Darling added that banks were obliged to raise lending levels, saying that the government did not rescue the banking sector “out of some charitable act”.

Speaking on Radio 4’s Today programme, John McFall, chairman of the Treasury select committee, warned that banks would be expected to make their lending agreements more transparent.

“There is a tension between what the banks are doing and what the governor of the Bank of England wants to do. The banks want to sustain the level of profitability, so build up the capital,” he said.

“There is the government’s and the governor’s fear that the recovery will be jeopardised by an inadequate provision of credit and increased cost of borrowing, and the anecdotal evidence that’s been coming to the select committee for the past number of months has been … that it’s small and medium sized businesses that are losing out.”

However, Ms Knight said that banks could not lend at the 0.5% base rate because they had to pay a significantly higher rate on funds that they themselves borrowed in the wholesale money markets.

“As far as the major banks are concerned they are lending, and increasing their lending,” she added.

Stephen Alambritis, chief spokesman for the Federation of Small Businesses, welcomes the renewed pressure on banks to increase lending.

“Alistair Darling was quite right to haul in the banks”, he said. “It is hugely important that Mr Darling keeps tabs on the banks to ensure they are lending money to firms, and at fair rates. Firms need to be able to reap the benefits of the historically low base rate.”

This entry was posted on Monday, July 27th, 2009 at 9:46 am and is filed under Banking, Loans. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.