Banks accused of falling short on loans to business

Britain's banks are behind on their pledge to lend to smaller firms and face continued criticism for their lack of support for businesses that are vital for economic recovery.

Figures from the Bank of England yesterday showed Britain's big five high street lenders almost £1bn short on their commitment to make £76bn of loans available to small and medium-sized enterprises (SMEs) this year.

In the first nine months of this year they made £56.1bn available to SMEs, leaving them with £19.9bn of lending to complete in the final three months of 2011 under the Project Merlin agreement with the Government.

The banks are on track for their pledge to agree £190bn of loans to UK firms but the SME figure is especially sensitive. SMEs make up more than half of the British economy and rely far more on bank lending than large companies that tap capital markets.

John Walker, chairman of the Federation of Small Businesses, said: "While the banks are on course to meet lending targets to all businesses, they have yet again missed the small business target. We need to see a clear change: more competition and new lines of credit opening for small firms if they are to help boost the recovery. The Chancellor can address this by making credit easing open for firms that want small amounts of finance."

The Bank's Governor, Sir Mervyn King, has called on the Government to encourage bank lending to SMEs, including tax incentives and explicitly directing state-backed Royal Bank of Scotland and Lloyds to lend more.

The Project Merlin figures are at odds with the Bank's own numbers. The Merlin figures show "gross lending facilities" of £57.4bn for the third quarter of 2011 but the Bank calculates gross lending at just £25.5bn, excluding "rollovers" of existing facilities.

The Bank's figures show net lending to all businesses barely grew in the quarter, by just £400m. Net lending shows the amount made available minus customer repayments.

The banks blame low net lending on businesses that are repaying debt and unwilling to borrow.