Banks 'should be incentivised for SME lending'

Banks 'should be incentivised for SME lending'

By Rob Crossley

October 26th 2011 at 11:51AM

BoE governor backs 'credit easing' policies, but admits QE won't boost bank loans

Sir Mervyn King, the Bank of England governor, believes lenders should be given more incentives for supplying credit to small businesses.

His claim comes after a recent survey found that the state of the economy is the most important issue for game studios and developers. Since the 2008 mortgage crisis that sparked a global recession, credit lines to independent companies have become scarce.

But the UK government is considering a number of issues that it hopes will boost business lending and growth. A new multi-billion pound “credit easing” scheme was announced by the chancellor, George Osborne, at the Conservative Part Conference earlier this month.

The details of how credit easing will operate are still being worked on, but the policy is thought will involve the government providing a guarantee to certain credit deals between small businesses and lenders.

Speaking yesterday at a Treasury select committee, King did not specify how banks should be incentivised for lending.

He said: “Measures that are directed particularly on finding incentives for banks to lend specifically to SMEs is something which is appropriate for the government to do, and they have instruments to do it, which we don't.”

King also was compelled to defend the recent quantitative easing top-up, though he admitted the new fund injection might not encourage banks to lend to small businesses.
"I can't guarantee that it means that bank lending will rise, but what I do believe is that it won't fall as far as it might otherwise have done," King said.

"Fiscal incentives can persuade banks to lend to SMEs, or use of direct ownership of the biggest lenders."