Dec. 8 (Bloomberg) -- HSBC Holdings Plc, Europe's largest bank, said it will increase the amount of money it loans for U.K. home mortgages next year by 20 percent to 15 billion pounds ($22 billion).

The announcement came less than a day after the bank created a $5 billion fund to increase access to credit for small and medium-sized businesses. The bank's ability to expand its balance sheet is unusual and dovetails with its criticism of governments' deposit insurance as protecting its weaker rivals.

“HSBC has no intention of closing its doors to customers,” Paul Thurston, HSBC's U.K. managing director, said in an e-mailed statement. “By some estimates, net mortgage lending in the U.K. will fall next year.”

The U.K. government has expressed concern that banks are refusing to increase lending even after a 37 billion-pound rescue package. London-based HSBC, which had assets of $2.6 trillion as of June 30 this year, hasn't taken any money from the state bailout plan announced in October.

British banks approved 32,000 mortgages in October, the fewest since 1999 and less than a third of the 104,000 monthly average in 2007.

“All the other banks need to follow this example,” John McFall, the U.K. lawmaker who leads Parliament's Treasury Select Committee, said in a statement today. “I'm extremely pleased to see HSBC's initiatives.”

Of the $5 billion fund, HSBC is allocating $1.5 billion to U.K. customers and $520 million to Hong Kong businesses, the bank said yesterday.

'New Money'

“The fund represents new money, over and above what HSBC would normally expect to lend in the current business environment, and will be funded from HSBC's own resources,” the bank said in a statement yesterday.

HSBC's loans to small and medium-sized companies in Hong Kong have grown over the past two months as rival banks curb lending, the lender's global co-head of commercial banking, Margaret Leung, told reporters in Hong Kong yesterday.

Senior executives at HSBC have said that government guarantees shouldn't last too long. Sandy Flockhart, chief of the bank's Asia-Pacific unit, asked Asian governments to abandon their guarantees of bank deposits soon as these helped weak banks, the International Herald Tribune said. HSBC Chief Executive Officer Michael Geoghegan last month said the British government bailout has been given to “failed managements.”

The Bank of England's key rate, cut to 2 percent on Dec. 4, is now at the lowest since Winston Churchill was prime minister in 1951. Britain's economy may shrink 1.3 percent next year, the most in the Group of Seven nations, according to the International Monetary Fund.

To contact the reporters for this story: Ambereen Choudhury in London at achoudhury@bloomberg.net; Chia-Peck Wong in Hong Kong at cpwong@bloomberg.net

Last Updated: December 7, 2008 21:24 EST