UK Darling:To Monitor What Each Bank Is Doing On Lending

Monday, July 27, 2009

Mon, Jul 27 2009, 17:07 GMT
http://www.djnewswires.com/eu

UPDATE:UK Darling:To Monitor What Each Bank Is Doing On Lending (Adds more quotes, details throughout.) By Laurence Norman Of DOW JONES NEWSWIRES

LONDON -(Dow Jones)- U.K. Chancellor of the Exchequer Alistair Darling warned banks Monday that they must pass on interest rate cuts and said the government will comb through the lending activities of individual institutions in coming weeks. Following a meeting with senior bank executives, Darling told the British Broadcasting Corp. the "advantage of low interest rates needs to be passed on." He said "we need to go through individual lending from each bank in this country and find out what the problems are" that prevents them lending more. He said the government must ensure that "banks don't charge any more than absolutely necessary." Darling said the treasury would meet with senior executives from each bank in coming weeks to do that. The Bank of England slashed the interest rate to a historic low of 0.5% in March, reducing the benchmark rate from 5.0% in October 2008. It has also launched a GBP125 billion quantitative easing program which it hopes will ease access to credit. Darling rejected the argument made by the banking sector that the government is asking them both to increase lending and repair their balance sheets, saying both can be done thanks to government support for the sector.

He acknowledged the banks have made progress in some areas, such as lending to larger businesses. However, for small and medium-sized firms, Darling said the government will need to ensure that "loans are properly priced" and that there is enough funding available. Darling said that maintaining competition in the banking sector was "absolutely imperative." He said the government will keep a close eye on competition concerns as it monitors lending levels. Monday's meeting, the latest in a series over recent months examining bank lending, included senior executives from most leading U.K. banks and building societies. It was also attended by U.K. Business Secretary Peter Mandelson and top officials from the BoE and the Financial Services Authority. Darling met with the lending panel for just over an hour and a half, treasury spokesman said, and he also said the next lending panel meeting will be in September. The government, the BoE and international institutions, like the Organization for Economic Cooperation and Development have all named the slow pickup in bank lending as a key impediment to the recovery. The U.K. economy has been in a recession since April 2008, the worst downturn in decades.

Prime Minister Gordon Brown has said U.K. banks have promised to increase lending by around GBP70 billion this year, helping to offset a steep decline in loans from foreign institutions. That GBP70 billion includes some GBP39 billion in extra lending agreed by Lloyds Banking Group (LYG) and Royal Bank of Scotland (RBS), both of whom have received large injections of taxpayer money. Other U.K. lenders, including HSBC Holdings PLC (HSBA.LN) and Barclays PLC (BARC.LN)) have also said they would increase mortgage and small business loans. Darling said the government will make sure that RBS and Lloyds Group "stick to the agreements" they signed up to. A spokesman for RBS declined to comment. There was no-one immediately available for comment at HSBC, Barclays and Lloyds. Sunday, Darling said he was extremely concerned about lending to small and medium-sized companies. "It seems that while the cost of borrowing has gone down charges to smaller companies has gone up," he said. The British Bankers Association said Monday that various forms of lending to small businesses from U.K. high street banks increased by GBP391 million on the month in June, a sign of easing credit conditions. While the government has criticized the banks, the opposition Conservative party blamed Darling and Prime Minister Gordon Brown for the slow pick up in lending.

Philip Hammond, the number two person on the Conservatives treasury team, told the BBC "the banks are getting conflicting and frankly contradictory signals from the government," with officials stressing the need for increased lending one week and the necessity of rebuilding balance sheets the next. Figures published by the European Central Bank earlier showed companies in the 16 countries that use the euro also face financing constraints which could hamper the recovery from recession. The ECB said the annual growth rate of private-sector loans in the euro zone slowed to a record low of 1.5% in June from 1.8% in May. -By Laurence Norman, Dow Jones Newswires; 44-207-842-9270; laurence.norman@dowjones.com (Nicholas Winning and Margot Patrick contributed to this story) Click here to go to Dow Jones NewsPlus, a web front page of today's most important business and market news, analysis and commentary: http://www.djnewsplus.com/access/al?rnd=LYcVE3ap0hNO2rEQUuy7Bw%3D%3D. You can use this link on the day this article is published and the following day.

(END) Dow Jones Newswires
July 27, 2009 13:07 ET (17:07 GMT)
Copyright 2009 Dow Jones & Company, Inc.

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