Lloyds, RBS to be scrutinised over lending

LLOYDS BANKING GROUP and Royal Bank of Scotland are being scrutinised by the government, which suspects the taxpayer-owned banks of pricing their loans to small and medium businesses at artificially high levels, resulting in them missing lending targets.<br /><br />Both banks, which turned to the government for help in the downturn, have between them agreed to loan &pound;39bn more than they otherwise would have to companies and mortgage customers.<br /><br />The agreement was a condition of the government&rsquo;s asset protection scheme (APS), which protected the banks from bad quality loans and investments.<br /><br />Whitehall insists RBS and Lloyds must hit lending targets to stimulate the economy, but some bankers say the corporate lending targets which have been set are unrealistic.<br /><br />Both are expected to beat their mortgage targets &ndash; &pound;3bn at Lloyds and &pound;9bn at RBS &ndash; but the corporate targets of &pound;11bn for Lloyds and &pound;16bn at RBS will not be achievable without reckless lending, according to industry experts.<br /><br />The news comes as Lloyds continues talks on how to withdraw from the APS.<br /><br />It is mulling a &pound;15bn rights issue, which would help it avoid further state aid.<br /><br />The bank has also said it would expect its lending commitment to shrink if it does end up raising the fresh capital.<br /><br />But the Treasury is considering imposing an estimated &pound;150m break fee for the bank to quit the scheme.<br /><br />The figure is drawn from a 1 &ndash; 1.5 per cent fee on the revenues Lloyds generated because of the APS.