Lloyds and RBS to make new business loan vows at Budget

Bailed-out banks are expected to announce a new lending deal alongside the Budget, but economists today attacked the plans as unambitious.

Lloyds Banking Group and Royal Bank of Scotland will pledge to lend £90 billion to businesses this year. They missed 2009 targets as firms sought to strengthen their balance sheets rather than take on new debt .

But City figures said the plans to change the target measurement to gross lending, leaving out repayment levels, "may do little more than keep lending at last year's levels".

RBS, in which the taxpayer has an 84% stake, committed to lend an extra £25 billion last year in return for receiving state support - £9 billion for mortgages and £16 billion in loans to credit-starved firms.

Lloyds, 41% government-owned, agreed to lend £14 billion over a year in return for its bail-out, comprising of £3 billion for home loans and £11 billion to companies.

The banks were also supposed to lend at the same levels in the year from this month, although RBS has said potential changes to the targets were under discussion.

Vicky Redwood, of Capital Economics, said the new arrangements "do not look very ambitious". While they would make it easier for the banks to meet their targets, she said that if firms kept repaying loans the move might not increase the amount of credit in the economy.

There was also "no guarantee" that any new targets would be met. "After all, the previous targets were supposed to be legally binding commitments," she said.

"Yet the banks missed them, seemingly without any repercussions. Why should we be any more certain that they will meet these new targets?"

On a gross basis, RBS extended £60.2 billion to businesses in 2009, while Lloyds lent £35 billion.

Redwood said that even if the banks had been able to fulfil their commitments, it would have increased net lending by only 20% of the total amount bank lending needed to rise by.

"Overall, then, the new targets do not alter our view that a prolonged period of weak bank lending will be a key constraint on the strength of the economic recovery," she said.