UPDATE: UK Cable: New Bank Lending Targets Still An Option

19th Jul 2010 17:12

(Adds detail, context) By Laurence Norman and Jonathan Buck Of DOW JONES NEWSWIRES FARNBOROUGH, England (Dow Jones)--U.K. Business Secretary Vince Cable confirmed Monday the new government is still weighing up new lending targets for the part-nationalized banks but said that it is only one of the options available. In comments to Dow Jones Newswires on the sidelines of the Farnborough International Air Show, Cable said the current targets for Lloyds Banking Group PLC (LLOY.LN) and the Royal Bank of Scotland Group PLC (RBS) set by the previous government will remain in place for now. These will expire in the spring of 2011. Asked if the government will impose new lending targets when the current targets expire, Cable said: "The chancellor and I are publishing a green paper on business finance later this week that will give some indications as to what the options are. That's only one of several ways that we can get banks lending to business, which is what we need." Asked if lending targets would be effective in raising the supply of credit to smaller firms, Cable said he did not want to "prejudge how we go forward." RBS in March agreed to make GBP50 billion in gross loans available to businesses in the U.K. in the next 12 months; and Lloyds agreed to provide GBP44 billion. Last year, RBS lent GBP41 billion gross to businesses. When taking repayments into consideration, however, net lending to businesses was a negative GBP6.2 billion. The target was GBP16 billion. Lloyds, meanwhile, lent GBP38.3 billion to businesses last year. Considering repayments, net lending was GBP5.7 billion, short of the GBP11 billion target. The coalition government made lending to small businesses a key promise when it took office in mid-May. Before the election, Prime Minister David Cameron's Conservative Party had promised a national loan guarantee scheme to boost lending while Cable's Liberal Democrats--the junior partners in the coalition--had said they would force the pert-nationalized banks to lend more. Since taking office, Cable has continued to criticize the banks for failing to do more to increase lending, dismissing arguments from the banking sector that low levels of lending are a result of reduced demand. The Treasury has generally taken a softer tone. Last week, Cable and Chancellor of the Exchequer George Osborne sat down with bank chief executives to discuss what the banks could do to ensure access to credit for solid businesses. But Lloyds and RBS, as well as Barclays PLC (BARC.LN) and HSBC Holdings PLC (HBC), have said they aren't seeing heavy demand for loans and that existing facilities aren't fully drawn. The lending issue is closely tied to the future of the taxpayer's stakes in the likes of Lloyds and RBS. Pushing the banks to make riskier loans could help propel a fragile economic recovery but could also undermine the price the government hopes to get when selling off those stakes. On Monday, the government picked Jim O'Neil from Bank of America Merrill Lynch to oversee its 41% stake in Lloyds and 83% share of Royal Bank of Scotland. As head of market investments, he will also develop the strategy for divesting of the stakes, though no firm timetable has been set. -By Jonathan Buck and Laurence Norman; [email protected] (Margot Patrick contributed to this article.) (END) Dow Jones Newswires July 19, 2010 12:12 ET (16:12 GMT)