HBOS to pay small firms interest

THE COUNTRY's fifth-largest bank, HBOS, is to pay interest on small business current accounts as part of its goal to double its share of this lucrative market over the next three years.

HBOS, formed by the merger of Halifax and Bank of Scotland this year, wants to take market share from the UK's four biggest banks which have been accused by the competition watchdog of holding an effective monopoly on small business banking. HBOS said it had just 3% of the market. Lloyds TSB, Royal Bank of Scotland, Barclays and HSBC control about 80% of small business banking.

'The majority of small businesses have substantial cash balances and yet receive no interest from their bank,' said George Mitchell, treasurer and managing director of the Bank of Scotland business within HBOS. 'Our account will always pay a competitive rate of interest.'

HBOS would pay two percentage points less than the UK base rate - currently 4% - on balances of one pound or more. The new account, available from January, would be provided under the Bank of Scotland brand. Paying interest to existing customers would cost HBOS £20m.

Mitchell said the move was the first in a series of business banking initiatives but he did not give any more details.

The Competition Commission recently found the four big banks held a monopoly over small business accounts. The Government is expected soon to announce recommendations aimed at increasing competition within this market.