Amid claims banks aren't doing enough to help the United Kingdom's economic recovery, chief executive officers of six of the U.K.'s largest banks have asked for two months to study the business lending market and come up with ways to meet any unmet demand.
In a letter Friday to Chancellor of the Exchequer George Osborne, HSBC Holdings PLC Chairman Stephen Green, acting in his role as chairman to the British Bankers' Association, said banks "recognize the collective role we have to play" in supporting the economic recovery, and that a task force set up by the banks will look at additional steps to take to lend more, "with or without government support."
The task force will also look at ways to restart the securitization markets, which were a major source of bank funding for loans before the financial crisis.
An ongoing attack on banks over their business lending stepped up a notch last week as part state-owned lenders Royal Bank of Scotland Group PLC and Lloyds Banking Group PLC reported a return to profit in the first half, and the country's other major banks — including HSBC, Barclays PLC and the U.K. arm of Spain's Banco Santander SA — saw profits rise sharply.
Osborne has called on banks to make more credit available to businesses, or face government-sanctioned lending targets. RBS and Lloyds already have agreed to gross lending targets this year on both business lending and mortgage loans. The Bank of England in its June Financial Stability Report estimated that if the major banks limited bonuses to pre-crisis levels and froze dividend payments from last year's figures, they would have enough extra capital to provide $80 billion in additional lending.
Bank of England Governor Mervyn King has been one of the fiercest critics of the banking sector over its perceived reluctance to lend, and last week told lawmakers the current lending targets agreed to by the government, RBS and Lloyds are "not effective."
He, along with the government, wants there to be more competition in the sector, and said banks' argument that demand is weak is inadequate. However, he said he didn't think the economic recovery would be held up by problems small businesses might be having in securing credit.
Meanwhile, the Financial Ombudsman Service, a statutory body that settles complaints between consumers and financial firms, said the number of complaints made by small businesses increased 35% in the year through March 31, to 4,758 from 3,525.
The banks have argued that their loan-application approval rates have actually gone up this year and that they aren't seeing enough demand from credit-worthy borrowers. Barclays chief executive officer John Varley Thursday said lending for the sake of lending is what helped cause the financial crisis and shouldn't be repeated, while Lloyds CEO Eric Daniels said demand "is simply not there."
"Banks are providing good finance to viable business," bankers association CEO Angela Knight told BBC Radio 4 Monday, adding that "significant amounts" of credit are not being taken up. She said banks need a wholesale funding market that works properly, an understanding of where the "pinchpoints" are, and certainty that new, international capital adequacy rules don't adversely affect financing.
Green's Friday letter outlined the task force's priorities, and set an early October deadline for reviewing its findings with the government. The work will be done in cooperation with industry experts and government representatives.