Budget 2010: Bailed out banks to lend more to businesses

| March 25, 2010 | 0 Comments

In yesterday’s Budget, Chancellor Alistair Darling unveiled plans for rescued banks, Royal Bank of Scotland (RBS) and Lloyds Banking Group, to lend more to businesses.

In a legally binding agreement, RBS and Lloyds, which are 84% and 41% owned by the taxpayer respectively, were rescued at the height of the financial crisis but there have been concerns that the bailed out banks have not helped small businesses through the economic downturn.

The two banks have lent a combined gross total of £76 billion to businesses. However, the economic outlook has meant customers have been cautious and have therefore, repaid debt more quickly.

Consequently, the banks have not hit their combined net lending target of £27 billion to businesses.

As a result, the two banks have been told to up their lending targets.

RBS and Lloyds will now have to provide a total of £94 billion in small business loans in 2010 and 2011.

However, according to the agreement, if banks do not raise the amount they lend, they could face pay limitations.

In related news, the Chancellor is keen to encourage competition within the banking sector and has requested that the Financial Services Authority (FSA) speed up the process in which it grants a new banking licence.

According to the Chancellor, there are nearly half a dozen either in the market or are in the process of being set up.

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