Big banks fail to meet business lending targets

The Royal Bank of Scotland and Lloyds Banking Group are failing to meet legally binding commitments to lend to businesses, agreed as part of government support for the two banks.

Under the terms of the Asset Protection Scheme Lloyds group pledged to lend an additional £14bn in the year to February 2010 while RBS committed to an extra £25bn in lending over the same period.

These pledges were agreed to by the banks in return for a government indemnity of up to 90% of losses on their bad debts.

But the parliamentary Committee of Public Accounts says that although the banks were on track to meet their pledges last September business lending to small and medium-sized firms is now falling short.

The Treasury was unable to tell MPs why lending commitments are not being met and the committee says it was unable to judge whether this was due to lack of demand, a decline in the availability of funds or both.