Banks need incentives to lend to smaller businesses

Banks should be given incentives to lend to small and medium enterprises, the Governor of the Bank of England has said.

In his speech to the Institute of Directors (IoD) in Liverpool last night, Mervyn King said that while Quantitative Easing has reduced larger company's reliance on banks, small and medium enterprises (SMEs), are still constrained to borrowing through the banking system.

King described this as a 'special concern', last night, which he raises repeatedly at hearings of the Treasury Committee on Parliament. He said:

"Over the past year the stock of SME borrowing has shrunk by around £5 billion or 5 per cent. By far the most effective way of helping SMEs quickly would be to provide incentives for lending by existing banks because they can assess credit risk in a way that no other institution could do in the immediate future."

He went on to say that Bank and Treasury officials are working on such ideas, but that the ultimate decision would rest with the Government.

Announcements on the easing of credit for small and medium sized enterprises are expected in the Chancellor's Autumn Statement on 29 November.