By politics.co.uk staf
The chancellor has offered banks a stark warning to Britain's banks as market analysts predict a return to profitability across the board this week.
HSBC, which received no state funding during the financial crisis, already posted huge profits of $11.1 billion (£7 billion) for the first six months of 2010, doubling its return from the same period last year.
Lloyds Banking Group, the Royal Bank of Scotland and Barclays are expected to confirm they returned to profitability this week.
But George Osborne warned banks they were still failing to lend to small and medium sized businesses.
"Every small and medium-sized company that I have visited in recent weeks has had some problem with their bank - either they have found it difficult to renew their overdraft or they demanded additional collateral, often someone's house," the chancellor said in an interview with the Sunday Telegraph.
"The danger is that, particularly next year, when there is a huge amount of refinancing required, that the small and medium-sized businesses suffer from a lack of access to working capital.
"There are choices in the coming year and I think that the British banks are in no doubt that the government wants to see reasonable access to credit on reasonable terms in the small to medium-sized business sector."
HSBC said it had only set aside $7.5 billion to cover bad loans, the lowest level since the crisis started in 2008, offering positive signs that the conditions in the banking sector were improving.