UK Banks Increase Loans To Small Firms Modestly in May

High street banks increased lending to small businesses modestly in May, the British Bankers' Association said Wednesday, underlining the slow easing of credit conditions in the U.K.

The BBA said banks increased lending to small firms in May by GBP133 million, excluding overdrafts, compared with a GBP267 million increase in April and a GBP299 million average monthly rise in 2008.

The outstanding stock of term loans to small firms was GBP46.3 billion at the end of May.

Overdraft lending to small firms, defined as those with annual turnover less than GBP1 million, rose GBP20 million in May for the second month running.

"The small business sector saw another monthly increase in its borrowing from the high street banks in May, while reduced trading activities and greater control of liquidity were reflected in increased deposits and little changed overdraft levels," said BBA statistics director David Dooks.

The government has said increased bank lending to businesses and consumers is crucial in helping the economy recover from a deep recession.

On Tuesday, U.K. Chancellor of the Exchequer Alistair Darling said he would soon be sitting down with banks to discuss their lending activities.

The Royal Bank of Scotland PLC (RBS) and Lloyds Banking Group PLC (LYG) have committed to detailed lending commitments over the next two years in return for government support.

Prime Minister Gordon Brown has said banks have committed to increase lending by some GBP70 billion over the next year.