David Prosser: The banks are lending as much as they can, but it is not enough


Outlook How do we square the insistence of the banks that they are lending to deserving small and medium-sized businesses with the complaints from those very same enterprises that they are being starved of credit? Mervyn King, the Governor of the Bank of England, answered that question brutally in evidence to the Treasury Select Committee last week. The banks' treatment of businesses was "heartbreaking", he said, which rather implies he doesn't believe what they say.

Lloyds, yesterday's bank in the spotlight, rejects the criticisms of those who say it is not playing its part in supporting the economic recovery, and published a long list of statistics to demonstrate just how much support it is offering businesses. Eight in 10 applications for credit are accepted, lending to business totalled £23.7bn in the first half, £5bn more than last year, and 60,000 new small-business accounts have already been opened in 2010.

Doubtless, all these figures are true. They do not take account, however, of the businesses subtly advised not even to bother applying for credit, or the enterprises which suddenly discover a long-standing overdraft arrangement has been pared back (a common occurrence, which contributes to the fact that net lending is so much lower than gross lending). Yes, demand for credit is lower than it has been in the past, with some businesses anxious to strengthen their balance sheets in the face of economic uncertainty. But there are just too many complaints about credit for them all to be dismissed as anecdotal evidence or whinges from businesses that aren't creditworthy.

This is not to single Lloyds out. All of the banks face the same balance-sheet constraints on their lending. Moreover, the endless list of banks that have pulled out of the market to lend money to British businesses since the financial crisis – a string of foreign banks, all the building societies, many specialist intermediaries, and so on – has left too big a hole for the remaining players to fill.

Worse, the prognosis for the years ahead is not a happy one. The taxpayers' support the banks have had, via the credit guarantee scheme and the special liquidity scheme, must be repaid by the end of 2012. Other funding is coming up for rollover too.

Another crunch is coming in other words. It may or may not be really serious. Lloyds, for one, appears to be making good progress on its funding, but it will certainly be a continuing constraint on the banks' ability to offer further advances.

There isn't an easy answer to these problems. For all the posturing of George Osborne, he cannot force the banks to lend more and doing so would not necessarily be desirable given that we want them to continue improving their capital and liquidity. Even the bonus question is a distraction: yet more payments to fat-cat bankers may be distasteful, but the value of the hand-outs does not scratch the surface of the lending shortfall.

Mervyn King said last week that more competition would help. He is right, of course, but where will that competition come from? Look at Santander's deal yesterday to snap up those 318 branches that the European Commission ordered Royal Bank of Scotland to sell. Every other potential bidder pulled out well before deadline day for offers for the network, hardly the sort of competition the Commission hoped to stimulate by ordering the RBS sell-off.

That deal is another reminder that for all the talk of new entrants coming soon to the banking sector in Britain, precious few have arrived. Aldermore, the new business-focused bank, is one exception, while Metro Bank, in the consumer space, launched last week. That's it. It looks as if the Governor's heart isn't going to be fixed anytime soon.

Start your day with The Independent, sign up for daily news emails
ebooks
ebooksAn introduction to the ground rules of British democracy
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
SPONSORED FEATURES
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

SThree: Experienced Recruitment Consultant

£20000 - £40000 per annum + OTE + Incentives + Benefits: SThree: Established f...

SThree: Trainee Recruitment Consultant

£20000 - £25000 per annum + OTE 40/45k + INCENTIVES + BENEFITS: SThree: The su...

Recruitment Genius: Collections Agent

£14000 - £16000 per annum: Recruitment Genius: This company was established in...

SThree: Trainee Recruitment Consultant

£20000 - £25000 per annum + OTE 40k: SThree: SThree are a global FTSE 250 busi...

Day In a Page

Isis profits from destruction of antiquities by selling relics to dealers - and then blowing up the buildings they come from to conceal the evidence of looting

How Isis profits from destruction of antiquities

Robert Fisk on the terrorist group's manipulation of the market to increase the price of artefacts
Labour leadership: Andy Burnham urges Jeremy Corbyn voters to think again in last-minute plea

'If we lose touch we’ll end up with two decades of the Tories'

In an exclusive interview, Andy Burnham urges Jeremy Corbyn voters to think again in last-minute plea
Tunisia fears its Arab Spring could be reversed as the new regime becomes as intolerant of dissent as its predecessor

The Arab Spring reversed

Tunisian protesters fear that a new law will whitewash corrupt businessmen and officials, but they are finding that the new regime is becoming as intolerant of dissent as its predecessor
King Arthur: Legendary figure was real and lived most of his life in Strathclyde, academic claims

Academic claims King Arthur was real - and reveals where he lived

Dr Andrew Breeze says the legendary figure did exist – but was a general, not a king
Who is Oliver Bonas and how has he captured middle-class hearts?

Who is Oliver Bonas?

It's the first high-street store to pay its staff the living wage, and it saw out the recession in style
Earth has 'lost more than half its trees' since humans first started cutting them down

Axe-wielding Man fells half the world’s trees – leaving us just 422 each

However, the number of trees may be eight times higher than previously thought
60 years of Scalextric: Model cars are now stuffed with as much tech as real ones

60 years of Scalextric

Model cars are now stuffed with as much tech as real ones
Theme parks continue to draw in thrill-seekers despite the risks - so why are we so addicted?

Why are we addicted to theme parks?

Now that Banksy has unveiled his own dystopian version, Christopher Beanland considers the ups and downs of our endless quest for amusement
Tourism in Iran: The country will soon be opening up again after years of isolation

Iran is opening up again to tourists

After years of isolation, Iran is reopening its embassies abroad. Soon, there'll be the chance for the adventurous to holiday there
10 best PS4 games

10 best PS4 games

Can’t wait for the new round of blockbusters due out this autumn? We played through last year’s offering
Transfer window: Ten things we learnt

Ten things we learnt from the transfer window

Record-breaking spending shows FFP restraint no longer applies
Migrant crisis: UN official Philippe Douste-Blazy reveals the harrowing sights he encountered among refugees arriving on Lampedusa

‘Can we really just turn away?’

Dead bodies, men drowning, women miscarrying – a senior UN figure on the horrors he has witnessed among migrants arriving on Lampedusa, and urges politicians not to underestimate our caring nature
Nine of Syria and Iraq's 10 world heritage sites are in danger as Isis ravages centuries of history

Nine of Syria and Iraq's 10 world heritage sites are in danger...

... and not just because of Isis vandalism
Girl on a Plane: An exclusive extract of the novelisation inspired by the 1970 Palestinian fighters hijack

Girl on a Plane

An exclusive extract of the novelisation inspired by the 1970 Palestinian fighters hijack
Why Frederick Forsyth's spying days could spell disaster for today's journalists

Why Frederick Forsyth's spying days could spell disaster for today's journalists

The author of 'The Day of the Jackal' has revealed he spied for MI6 while a foreign correspondent