HBOS pledges small business support

By Rhys Jones and Steve Slater

LONDON (Reuters) - Merger partners Lloyds and HBOS pledged to pass on interest rate cuts or increase lending to small businesses as banks were blamed for turning off credit and urged to boost lending in the face of recession.

Politicians and small business lobby groups have blamed banks for cutting credit and some companies in a survey of UK services firms on Wednesday said lenders had tightened terms over the past month.

The services sector shrank last month at its fastest pace since the series began in 1996, the data showed, stoking concern that a lack of credit is deepening economic problems.

UK Prime Minister Gordon Brown will later on Wednesday outline plans to strengthen the banking system to help maintain the supply of loans to credit-starved small firms and families to help them through a recession. It will be part of his slate for 2009, set out in the traditional speech to parliament by Queen Elizabeth.

Lloyds promised to pass on in full any reductions in base interest rates in 2008 and 2009 to small- and medium-sized enterprises (SMEs) as part of a six-point charter to help them weather the current economic downturn.

HBOS, the bank Lloyds is taking over, separately said it would use 250 million pounds of European funding to provide more attractive lending facilities to SMEs.

LENDING OR NOT?

The government is providing up to 17 billion pounds to Lloyds and HBOS as part of its bank rescue plan and is stepping up the pressure on all lenders to keep credit flowing. It has warned they could face full nationalisation if they do not do so.