Lloyds TSB warns SME changes will cost £100m in profits

Lloyds TSB yesterday warned that improved terms on small business bank accounts to be imposed by the Competition Commission would cost £100m a year ­ far higher than analysts had expected.

Lloyds also revealed that some of the money would be used to apply the improved terms in Scotland as well as England and Wales. The Commission had ruled that the key change of introducing interest on small business accounts or removing charges for certain services would only have to happen south of the border.

Lloyds, which is headed by Peter Ellwood, said that when it launches its account with interest, it will be an "across the board" offer. HSBC, still a relatively small player in business banking, has also pledged to give Scottish customers access to the new accounts, but Barclays and Royal Bank of Scotland, which owns NatWest, have not committed themselves to doing so.

The banks were told about the Commission's recommendations in March. Barclays and RBS said they were still considering whether to offer interest on accounts in Scotland.

RBS, which controls more than 30 per cent of the market in Scotland, said: "We are not saying we are not going to introduce interest on business accounts. We are focusing now on what we have been charged to do, which is make changes in England and Wales."

Lloyds' guidance on business banking came as it updated the market ahead of half-year results next month. The bank said provisions for bad debts had been increased as its overall lending increased and was not due to an increase in bad debts.

HBOS also issued a trading update, saying it is on track to meet targets of capturing 20 per cent of new personal current accounts and 20 per cent of new credit cards in 2002. It is expected to beat its target on mortgage lending, which stands at 25 per cent of new business.

The merged Bank of Scotland and Halifax entity tried to dampen fears that its increases in market share have been expensive, saying its margin is "stable". It has also increased bad debt provisions, which it said was "primarily driven by volume".

HBOS is about to inject £600m into its investment arm, Clerical Medical. The bank said it would add the extra capital at the time of raising a total of £1.2bn of new money in March and stressed that the injection was not due to deterioration of its solvency.

Lloyds also faced down speculation its subsidiary Scottish Widows needs extra capital. The bank is unlikely to add extra funds to the life business. But Lloyds did warn it could book a net charge of £195m this year on its pension fund, due to the fall in the value of investments and new accounting rules. Lloyds shares fell 9.5p to 632.5p and HBOS fell 2.5p to 715.5p.