December 5, 2012 / 7:36 PM / 5 years ago

State-backed development bank to open next year

LONDON (Reuters) - Britain will open a business development bank backed by 1 billion pounds of tax-payers’ money early next year, the government said on Wednesday.

The bank, first announced in September, is the brainchild of business minister Vince Cable, who wants it to boost financing for smaller companies currently starved of loans from Britain’s main lenders, hindering a business-led economic recovery.

It should be fully operational by the autumn of 2014.

Britain’s leading banks are under pressure to rebuild their balance sheets following the financial crisis and have cut back their lending to smaller firms.

Chancellor George Osborne confirmed the government’s backing for the bank in a budget update on Wednesday, with Treasury documents showing that it would be given 50 million pounds of capital in the 2013-14 financial year and a further 250 million the year after.

The balance of the 1 billion pound funding is earmarked for delivery over the following three years, although that would be after the next election due in May 2015 and would rely on a future government continuing the commitment.

Cable’s Business department hopes that private providers of capital will match the state funding to eventually support up to 10 billion pounds of new lending.

Cable has frequently complained that a hoped-for private-sector recovery for Britain’s economy is being held back by the inability of smaller firms to obtain the loans they need on reasonable terms.

His officials said the government was in the process of looking for a “senior individual” to head an advisory board to help set up the bank, and hoped to make an announcement soon.

The bank will not have a retail presence, but will operate through new and existing finance providers.

Cable has long wanted to create a development bank along the lines of Germany’s KfW or America’s Exim Bank, but has had to tread carefully to avoid infringing European Union rules on state aid.

Reporting by Tim Castle; Editing by Ruth Pitchford

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