BANKS in the UK are becoming much more optimistic than their European counterparts as the British economy starts to improve, according to a survey by accountancy firm Ernst & Young (EY).

The EY European Banking Barometer, a bi-annual study that gathers the views of senior bankers across the main European banking markets, reveals that UK institutions expect their performance to improve significantly.

British bankers also expect to increase lending to businesses and consumers, after coming in for sustained criticism for dampening the UK economy by prioritising slimming down their balance sheets over lending to corporate Britain since the banking crisis.

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Omar Ali, EY's head of banking and capital markets in the UK, said: "As the wider economic recovery continues to gain pace, banks are more confident to lend to both consumers and companies alike.

"After years of tight credit restrictions, banks are now able to be more bullish in their attitudes towards lending across all sectors."

Nearly three quarters of UK respondents to EY's survey said they expect economic conditions to improve compared to 56% of respondents across Europe.

British bankers were also far more positive than their counterparts about loan growth. The UK is the only country in which bankers expect to see an increase in lending to all sectors, with smaller companies and companies in commercial real estate, healthcare, and media and telecoms sectors likely to benefit the most.

But British banks still face a number of challenges, including around pay. According to a report this weekend Edinburgh-based Royal Bank of Scotland intends to seek shareholder approval to offer top staff bonus of up to twice their salaries in bonuses. Under new European Union rules banks need investor backing if they are to award bonuses of more than 100% of salary.

This could put the part-nationalised bank in conflict with the Government.