Concerned

Chancellor Alistair Darling is to quiz bank bosses over how much small firms are charged for loans after he says he is very concerned that their rates may be too high.

He is worried that the cost of loans has risen even though the UK’s interest rates currently stand at a record low of 0.5%.

He also said that banks had a duty to restore lending levels, adding that the government didn’t save the banking sector out of “some charitable act.”

He said: “The public now understand it if they [the banks] don’t seem to be doing their part.

“I want them to rebuild their balance sheets… but at the same time, because of the particular circumstances we’re now in, because of the fact we’ve got this recession, we also need them to lend money. And that’s why we re-capitalised them to do that, and that means they’ve got to live up to the promises that they made.”

Rates Reflect Wholesale?

Many banks, including Lloyds (including Halifax and the Bank of Scotland), and the RBS (which includes NatWest and Northern Rock) received emergency funding from the government after the credit crunch began.

The Chancellor made these comments after an official report made by Moneyfacts said banks had increased the interest rates they charged for personal mortgages by nearly four times the amount in recent months despite the base interest rate remaining at 0.5%.

Chief executive of the British Bankers Association, Angela Knight, said banks had to pay a lot more than 0.5% for the funds they borrowed in the wholesale market, and therefore had to pass this on to their customers.

She added that despite this, banks are now ‘stepping up’ to meet the increasing demand for small business loans.

Time To ‘Haul In The Banks’?

Stephen Alambritis of the Federation of Small Businesses said that the chancellor was right to “haul in the banks”.

He believes: “It is hugely important that Mr Darling keeps tabs on the banks to ensure they are lending money to firms, and at fair rates. Firms need to be able to reap the benefits of the historically low base rate.”

Mr Darling also added that VAT will increase from its current rate of 15% to 17.5% again, after it was reduced at the beginning of December in order to help boost retail sales.

When looking at the wider economy, the chancellor says that he still believes that the economic recovery will begin to recover at the beginning on the year, with the most growth being seen in 2010.

Official figures released last week show that the British economy has continues its contraction between April and June of this year, though the rate was slightly slower than the previous quarter.

What Do You Think?

Are the banks taking advantage, or do their interest rates reflect wholesale rates they still have to pay? We would love to know your thoughts and opinions. Leave your comments here.