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Royal Bank of Scotland (LSE:RBS) and Lloyds (LSE:LLOY) Promise $156 Billion in New Loans


Wednesday, March 24th, 2010

In an agreement with the U.K. Treasury, Royal Bank of Scotland (LSE:RBS) and Lloyds (LSE:LLOY) have agreed to provide $156 billion in new loans for homebuyers and businesses over the next year.
 
On the business lending side, the Royal Bank of Scotland has promised 50 billion pounds to business, while Lloyds said it will offer 44 billion pounds in loans to business. That's an big increase over the 79.7 billion pounds loaned to businesses in 2009.

Chairman of RBS, Philip Hampton, said in a statement, “We have the capital to make this lending available. The right amount of debt for businesses will be greatly influenced by the pace of economic recovery.”

For mortgages, Lloyds said it'll offer 23 billion pounds in gross mortgage lending over the next year, while RBS said they will offer 12.7 billion pounds in net lending for mortgages going forward.

Chancellor of the Exchequer Alistair Darling announced the lending goals of the major banks today. Together the banks received over 65 billion pounds in taxpayer funds to increase their capital.

The question with these types of lending goals are if the capital is for growth or sustaining the businesses being lent to. That would determine the real condition of the market.

Lending for business growth would imply increasing demand, while lending for other reasons could be for no other reason than to keep businesses operating longer in hopes demand for goods and services would grow.

I tend to think economic conditions dictate these could be survival loans rather than growth loans, and that could cause a lot of problems down the road if demand doesn't return to the market, as the loans could be defaulted on.



Article by Gary B

The views expressed are the subjective opinion of the article's author and not of FinancialAdvisory.com



Tags: british banking , lloyds , rbs , royal bank of scotland