By Fiona Shaikh
LONDON (Reuters) - Britain is to expand its credit-easing scheme for small businesses to include larger firms and will also give banks more options to access state-guaranteed funds to boost take-up, finance minister George Osborne said on Tuesday.
The move comes as the government faces growing calls to stimulate Britain's flagging economy, which is suffering its second recession in four years.
Policymakers have highlighted a lack of credit as a major obstacle to Britain's recovery.
Osborne's comments on Tuesday related to the National Loan Guarantee Scheme (NLGS), launched in March, aimed at lowering the cost of borrowing for small businesses by giving banks a state guarantee to issue debt.
Giving his first assessment of the scheme in parliament, he said so far banks had offered 10,000 loans worth 1.682 billion pounds to businesses with a turnover of up to 50 million pounds.
He said the EU had granted approval for the scheme to be extended to include firms with an annual turnover of up to 250 million pounds - 99.9 percent of British businesses.
The finance minister, or Chancellor of the Exchequer, said banks had issued 2.9 billion pounds ($4.5 billion) of state-guaranteed debt since its launch, slightly more than the 2.5 billion pounds envisaged for this stage of the program.
The scheme is designed to guarantee up to 20 billion pounds of debt over two years.
But not all of Britain's banks signed up to the scheme. HSBC
Worries about banks' exposure to highly-indebted euro zone states have driven up the rates at which banks lend to each other, and made it costlier for institutions to raise funding on wholesale markets.
Under the NLGS, banks obtain a state guarantee for any debt they issue, which lowers their funding costs. They are obliged to pass on the lower costs by offering interest rates that are 1 percentage point lower than loans available outside the scheme.
So far, only two banks have issued bonds under the scheme. Lloyds
Osborne said banks would now be allowed to issue floating-rate bonds under the scheme, which should make it easier for them to issue debt. The scheme is also being adjusted to give banks greater flexibility on the maturity of debt they issue.
Earlier this month, the government and Bank of England announced they were teaming up to launch a separate "funding for lending" scheme to boost the flow of credit in the economy.
(Reporting by Fiona Shaikh; Editing by Pravin Char)