Bank chief denies cost of loans is barrier to lending

Contrary to claims by politicians that firms are being stifled by a lack of affordable borrowing, Morgan says companies are still concentrating on paying off debts rather than seeking fresh deals to fund expansion.

Morgan argues that businesses are still not coming through banks' doors because they don't have the confidence to take on major investment programmes in the current economic climate.

"It's not the price of finance that is putting people off borrowing," Morgan told Scotland on Sunday during a visit to Edinburgh last week. "It is the question over whether that investment is going to create a return.

"It's the economy that will give people the confidence to invest again."

The price of bank lending was pushed back up the political agenda earlier this month when business secretary Vince Cable used his first speech to industry leaders to attack financing costs.

Cable said businesses were not coming forward for lending because deals were unaffordable. "If the bar is set too high, of course no one is willing to jump," Cable said.

However Morgan insists competition has returned, particularly in the small business banking market in Scotland, where HSBC is seeking to grow its market share.

Last year HSBC grew its business customer base in Scotland by 35 per cent but John Rendall, chief executive of the bank's Scottish operation, said growth was likely to be more difficult this year as competition among lenders had returned to the market.

With the banking sector now on a more stable footing, institutions are once again fighting over customers, he said.

Colin Borland of the Federation of Small Businesses in Scotland said it was encouraging that players like HSBC were seeking to grow their market share in Scotland but he competition remained a serious problem north of the Border.

The FSB has accused Lloyds Banking Group and Royal Bank of Scotland of operating a "duopoly" in the small business market in Scotland.