FSA chief calls for commercial property lending crackdown

The chairman of the Financial Services Authority (FSA) has advocated restricting bank lending to the commercial property sector and diverting credit into other areas instead.

Lord Adair Turner told the House of Commons Treasury Committee that 80 per cent of lending is now either to the residential or commercial real estate sectors, whereas other areas of the economy, such as manufacturing, deposit roughly as much as they borrow.

While backing lending for new developments, he criticised firms' usage of credit to leverage real estate assets in order to benefit from tax breaks and suggested Britain follow the lead of states like Canada and Hong Kong in placing limits on this type of lending.

Citing the example of the Halifax Bank of Scotland (HBOS) group, Lord Turner remarked: "HBOS was not involved in fancy proprietary trading. It was a bank involved in a classic problem of over-exuberant banking to commercial real estate."

Latest figures from the Bank of England indicate that real estate lending showed only a minimal year-on-year decline during the final quarter of 2009, compared to a £4.3 billion reduction in all corporate lending over the same period.

05/03/2010