Osborne's stark warning to banks

THE Chancellor has fired a warning shot to banks over lending to businesses, ahead of results expected to reveal billions in profit across Britain's financial sector.

George Osborne warned banks it was their "economic obligation" to lend to business, amid increasing worries the sector is failing to free up credit.

He stressed the government "will not tolerate banks piling the pressure" on small businesses desperate for credit after the recession. His comments raise the spectre of a further crackdown on the industry as it prepares to report half-year figures

The sector's remarkable recovery is set to see taxpayer-backed Lloyds Banking Group claw its way out of the red, while embattled Royal Bank of Scotland could likewise make a return to profit at the half-year stage, according to some analysts.

The news will further stoke the political furore surrounding business lending levels

Mr Osborne's comments have added to calls for banks to use profits to increase the flow of credit rather than handing out bumper bonuses and dividends.

"Every small and medium-sized company that I have visited in recent weeks has had some problem with their bank - either they have found it difficult to renew their overdraft or they demanded additional collateral, often someone's house," the Chancellor said.

"The danger is that, particularly next year, when there is a huge amount of refinancing required, that the small and medium-sized businesses suffer from a lack of access to working capital.

"There are choices in the coming year and I think that the British banks are in no doubt that the government wants to see reasonable access to credit on reasonable terms in the small to medium-sized business sector."

HSBC, RBS, Lloyds and Barclays are expected to report more than 8 billion in profits between them for the first six months of the year.