Osborne warning as banks rake in billions

George Osborne told banks it was their "economic obligation" to lend to business amid increasing worries the sector is failing to free up credit.

He stressed the Government "will not tolerate banks piling the pressure" on small businesses desperate for credit following the recession.

The Chancellor raised the spectre of a further crackdown on the banking industry as banks prepare to report half-year figures, with experts forecasting even the State-owned players will post profits in a return to health after the financial crisis.

HSBC kicks off interim results from the major players today and UBS analysts are expecting the group to set the tone with profits of around 5.5bn.

The sector's remarkable recovery is set to see taxpayer-backed Lloyds Banking Group claw its way out of the red, while embattled Royal Bank of Scotland could likewise make a much-heralded return to profit at the half-year stage, according to some analysts.

Mr Osborne's comments add to calls for banks to use profits to increase the flow of credit rather than handing out bumper bonuses and dividends.

He said: "Every small and medium-sized company that I have visited in recent weeks has had some problem with their bank – either they have found it difficult to renew their overdraft or they demanded additional collateral, often someone's house."