Are Banks commiting to unwise lending practices? Monday, October 13, 2008
RBS, LloydsTSB and HBOS have all committed to maintain the availability of SME and mortgage lending at least at 2007 levels as part of the Government share scheme, agreed over the weekend.
This implies a considerable expansion of lending over current levels, which has to be considered precarious entering a recession. Whilst lending criteria might be tightened i.e. Loan to Value ratio is going to be less than 95% etc, it is hardly going to improve the bad debt prospects for the banks. Moreover given that this is now an explicit lending target, lending policies and rates will have to be adjusted to ensure it is met.
Obviously the Government is keen to ensure that the economy remains primed with access to credit but does LloydsTSB+HBOS really need to add to its' existing property market exposure. It may be politically expedient, but is it really good for new shareholders i.e. Us.