OCTOBER 19 2008 16:53h

UK Govt To Discuss Lending Practices With Banks

Peter Mandelson




The government is also calling for lenders to take a more flexible approach to homeowners.

The British government will meet bank chiefs to urge them to do more to help small businesses and homeowners, the country's newly appointed business minister Peter Mandelson said on Sunday.

The government pumped 37 billion pounds ($64 billion) of taxpayers' cash into three of Britain's biggest banks earlier this week as part of a wide-ranging package to shore up the financial system.

This has given it a new-found influence in the banking world, which it intends to use to ensure the benefits of the rescue package are swiftly felt in the economy.

"There are things that we can and will do both directly as a government, but also indirectly using the banks as lenders to businesses as well," Mandelson told the BBC's Andrew Marr programme.

"We can put in place, and we are, a framework of policy which in the round can help small and medium-sized enterprises as well as other businesses get through this period," he said.

The three banks that have accepted British government funds -- Royal Bank of Scotland, HBOS and Lloyds TSB -- have already pledged to maintain lending to homeowners and small businesses at 2007 levels.

Mandelson said he and finance minister Alistair Darling would talk to those banks about how that commitment would work in practice. Institutions that have not needed taxpayer capital would also be urged to be more accommodating.

"Amongst those banks in which we do not have a stake, Alistair Darling and I are going to talk to their chief executives and discuss with them how they can use their discretion and take a rather more flexible approach during this time of hardship in order to maintain credit lines to small and medium-sized enterprises," he added.

The government is also calling for lenders to take a more flexible approach to homeowners.

Chief Secretary to the Treasury Yvette Cooper told Sky News she wanted "stronger rules across the board" to make sure home repossessions were a last resort.

"There are other things that banks can do; for example, working with lenders maybe to re-profile the payments or maybe give people a repayment holiday so they are just paying interest," she said.

Almost 19,000 British homes were repossessed in the first six months of the year, almost 50 percent higher than a year ago. Tumbling house prices have already plunged thousands of homeowners into negative equity, and the Council of Mortgage Lenders reckons 45,000 properties will be repossessed by the end of the year.