A trio of British banks pledged to improve lending to small businesses or relax home repossession policy today after repeated calls from the government and Bank of England to boost lending in the face of recession.
Lloyds TSB promised to pass on interest rate cuts to small firms, its merger partner HBOS said it will provide more attractive loans to small and medium-sized enterprises (SMEs) and state-owned Northern Rock relaxed its home repossession policy.
BoE Governor Mervyn King warned last week banks must resume lending if the UK is to avoid a recession becoming a slump, while the government has said banks - many of whom have received major injections of public money - must do more.
But it has so far shied away from compelling banks to increase lending. The Queen's Speech, which outlined the government's agenda for the coming year on Wednesday, made no mention of any plans to force increased lending.
However, Prime Minister Gordon Brown is due to outline details of a new banking bill later today which could include provision to make a voluntary code of bank practice mandatory, which could lead to fines being imposed on banks who fail to treat customers fairly or hold back lending.
In the absence of government compulsion, the biggest beneficiaries of the government's £37 billion ($54.5 billion) recapitalisation programme have pledged to do more to help homeowners and small businesses.
Politicians and small business lobby groups have blamed banks for cutting credit and some companies in a survey of UK services firms today said lenders had tightened terms over the past month as the sector shrank.
Lloyds promised to pass on in full any reductions in base interest rates in 2008 and 2009 to SMEs as part of a six-point charter to help them weather the economic downturn.
HBOS separately said it would use £250 million of European funding to provide more attractive lending facilities to SMEs.
Northern Rock, which was nationalised early this year, followed rival Royal Bank of Scotland, now majority state-owned, by pledging not to repossess any homes for at least six months after a customer falls behind with payments.
The bank said when it repossesses a house the customer is 15 months in arrears on average.
Major banks say they are lending more to small businesses than in recent years. Loans to small businesses grew 1.8 per cent, or almost £1 billion, in the third quarter, according to British Bankers' Association data.
Reuters