Daniels: Forcing us to lend won't work

Lloyds boss fires warning shot amid fears of compulsory lending targets

David Cameron and Mervyn King pledge to ensure banks extend credit

Standard Chartered: Shareholders want us to reconsider British domicile

LLOYDS boss Eric Daniels fired a warning shot across the government’s bows yesterday, insisting attempts to force banks to lend were doomed to failure.

Politicians have stepped up the rhetoric over bank lending in recent days, arguing that reports of tight credit conditions for small businesses are unacceptable in light of a robust round of first-half profits.

But Daniels, who unveiled a forecast-beating £1.6bn profit haul for Lloyds yesterday, said: “I don’t think that [forcing banks to lend] has ever been a good idea and it has never worked in the past with other countries that have tried it. I don’t believe that will come down the pipe.”

The Lloyds boss, who came under fire after the disastrous acquisition of HBOS in 2008 pushed the group to the brink of bankruptcy, insisted that the bank is not “being mean and turning customers away”.

“We will make credit available to those who are credit worthy – but that is a big caveat,” he told City A.M.. “It doesn’t do a bank or its clients any good to lend to those who cannot afford to repay their debts.”

Daniels’ comments came as Prime Minister David Cameron yesterday met with Bank of England governor Mervyn King to discuss ways of making banks lend to small businesses.

However, the government is divided over how to boost lending. Business secretary Vince Cable has been talking up the introduction of compulsory lending targets for banks that fail to supply credit to small businesses, but chancellor George Osborne remains unconvinced of their effectiveness.

An aide to Osborne said lending agreements had not been ruled out, but conceded there was a “general perception they don’t work very well”. Instead, he said the government would likely try to boost lending by extending the existing loan guarantee scheme, which provides banks a guarantee for 75 per cent of their exposure to loans, and by kick-starting competition in the banking sector.

Policymakers received a further blow yesterday over their heavy handling of bank regulation, when Standard Chartered – which contributes over $1bn (£630m) in annual tax revenues – warned it could quit the UK.

Chief executive Peter Sands said investors were putting pressure on the bank over its decision to stay domiciled in Britain, adding: “At the moment we have no plans to move but we don’t want to be in a situation where having our headquarters in the UK gives us a competitive disadvantage. We are in danger of that.”

The imminent introduction of a levy on bank balance sheets has particularly annoyed Sands, who has said a rise in corporation tax would be fairer and less complicated to implement.