Osborne warns banks to lend as £8.4bn profit expected

Chancellor George Osborne has called for a tight rein on pay and bonuses and increased lending from the banks as they prepare to announce a recovery in profits this week.

He has called for a more sympathetic approach to small business lending and told banks they have an "economic obligation" to help the sector, the Telegraph reports.

In response, the banks are presenting new proposals to the Chancellor to improve the flow of lending to business as they brace themselves for renewed criticism about bonus payments.

They have tabled suggestions to improve operations in the wholesale market and to tackle securitisation problems facing small businesses unable to provide loan guarantees.

Analysts forecast the big five banks should collectively report interim profits of around £8.4bn, with HSBC and Barclays accounting for the lion's share. The two state-owned  banks, Royal Bank of Scotland and Lloyds Banking Group, are set to confirm they are back in the black, along with Northern Rock, the former building society rescued by the taxpayer.

NatWest and RBS say they have helped more than 100,000 new business start ups in the last year through an offer of two years free banking and are currently opening more than 2,000 accounts a week.