We need to solve the lending conundrum


Do you feel £2.7bn better off thanks to Lloyds Banking Group and the Royal Bank of Scotland? Or is your business like a rock on a roll? I do love headlines in the Sun.

Reports from the banking community unveiling outstanding profits may have lifted the stock markets, but I doubt it lifted many spirits among taxpayers.

Not that I’m knocking the return to profitability of Lloyds and RBS. As shareholders, we want to see a return on the investments the previous government made but banks need to support the recovery and the jury is out on whether they are lending where it matters.

Lloyds group says it has made almost £15bn available in new mortgage loans and £5.7bn to small businesses. BBC business editor Robert Peston estimates its total net loans have dropped 1% and it is charging more for that credit relative to what it pays for funds.

At the same time, borrowers concerned over job security are repaying debt as fast as they can.

The result is flat net lending figures. And here’s the conundrum – to lend more, banks have to relax their view on the credit worthiness of borrowers yet the build-up of excessive credit enabled by irresponsible lending is partly to blame for getting us into recession.

No-one wants a return to those days and we need to achieve a realistic level of credit. But banks must lend to future wealth makers as the private sector will have to mop up jobs from public sector cuts, and we need people in jobs so we don’t spiral back into recession.