Bank freezes small firm overdrafts

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NatWest and the Royal Bank of Scotland said up to a million customers could benefit from the stay, which comes into force on December 1 and lasts until the end of next year.

The bank also said overdrafts for small businesses would stay in place for 12 months without demands for repayment.

A spokeswoman for the British Banking Association (BBA) said the move was an attempt to shore up struggling clients.

She said: "Increasingly our members are trying to find ways to help their small business customers in particular and to see what they can do in the current climate.

"Against a general trend of other costs going up it does help small businesses in terms of cash flow to know that some of their charges are fixed. Frankly the banks want to hang on to customers and they clearly see this as a commercial advantage."

Overdraft lending to small businesses rose by 4% in the last year, and loans by 10%, according to BBA figures released last Friday.

Peter Ibbetson, chairman of small business for RBS, said: "The bank fully recognises that one of the biggest worries facing small businesses is the increase in the cost of borrowing and we believe this move will reassure our customers that the Bank is committed to supporting them."

Around a quarter of the UK's small businesses bank with NatWest and RBS.

Stephen Alambritis from the Federation of Small Businesses said: "This is a very welcome initiative from NatWest and RBS. Small businesses are concerned about the availability and pricing of their overdrafts and we are pleased that the Bank has listened to its customers and taken this action to support them."