Banks backtrack on lending pledge

The banks, both bailed out during the credit crunch and both with taxpayers as majority shareholders, signed legally binding contracts to lend more money to small firms. Treasury officials hoped the extra money would ease the impact of the crunch on businesses.

Lloyds agreed to dish out an extra £11bn to businesses this year, while RBS said it would extend a further £16bn, in return for access to the Asset Protection Scheme that was expected to insure £585bn of the two banks’ toxic debts, according to the Telegraph.

Lloyds said in a statement: "While the group is working hard to meet its business lending commitment, it is clear this will be a challenge and it is currently unlikely that the group will meet its 2009 targets."

Both banks claim the shortfall is down to falling demand for debt products, although small business groups will likely seize on the news as evidence that the sector is not being properly served by the banking industry.

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