Lloyds told to pump extra £240m into TSB

Lloyds Banking Group was last night told to inject £240m into the revived TSB to boost its ability to challenge the Big Four British banks.

The move follows a review into retail banking by the Office of Fair Trading and the ability of the new banks being spun off by Lloyds and Royal Bank of Scotland to compete with existing players.

TSB will be set up with 631 Lloyds branches and will boast 4.6 million customers. It will be the eight biggest UK bank when it becomes a standalone entity.

But the OFT said it was concerned that TSB was "subscale" and could struggle against its larger rivals.

The funds are intended to help remedy that by strengthening TSB's finances and giving it the funds to grow its branches and market share more quickly in a tough economic climate.

All-time low interest rates will make it hard for the new bank because they squeeze the margins banks can make between what they pay to depositers and what they make on mortgages and loans.

Some £200m will be payable over four years to boost TSB's profitability with an additional £40m to improve customer acquisition and develop the TSB branch network.

Lloyds was also ordered to ensure that services such IT, that it is providing to TSB as part of the transfer, "do not limit TSB's ability to compete in the future".