Stephen Hester, the chief executive of Royal Bank of Scotland, said that the bank was accepting 85 per cent of loan applications from small and medium-sized enterprises (SMEs) as part of its commitment to increase lending in the sector.

RBS promised, in February, to make an extra £16 billion of business lending available — both this year and in 2010 — as part of the price it must pay for taking part in the Government’s Asset Protection Scheme.

Mr Hester said that RBS had delivered on this, with gross lending to SMEs during the first nine months of 2009 hitting £28.5 billion, but he insisted that demand was “subdued”, with credit applications from July to September down 26 per cent on the same period last year.

“We have £27 billion of lines of credit that we have granted UK small and mid businesses that they have not drawn down,” he said. “So, if there was credit stress out there, they would be drawing down on those overdrafts. They are not doing so — they are repaying it. And we should all be happy at that. The way out of recession is not another borrowing binge. If that £27 billion were to be drawn down [and it’s available to be], then we would have exceeded our lending targets by 100 per cent.”

Mr Hester said that he remained supportive of lending targets that the Government had imposed on RBS: “We understand that, in a recession, people are more than usually anxious about money and finance and one of the important roles we have to do is reassure customers and make money available to them, where sensible. And over and above the targets, we have done unprecedented amounts.

“However, the the lending commitments were only ever to make money available at fair prices to people who can pay us back and we are doing that.

“The United States is out of recession faster than us, despite businesses paying back money and saving more, faster than us. I do not believe that the route to economic recovery is about borrowing more — I think it’s about making the economy safer. But we are there, we’re lending a lot of money to people, we’re open to business and we hope that people with good propositions will come to us for loans and I want to be unambiguous about that.”

Mr Hester said that RBS had been winning market share on Britain’s high street. The bank’s retail division signed 139,000 current account customers during the three months from July to September — helping it to lift customer deposits by £8.5 billion — and 25,000 mortgage customers.

He admitted that the bank’s insurance side, which includes Direct Line and Churchill, had suffered what he hoped was a “one-off blip” during the three months. He said that net claims had risen by 22 per cent during the quarter, which was “significantly higher than expected”, largely due to greater claims being made against drivers insured by RBS. Premiums had been raised to make up for this.

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