Banks behind on SME lending target

 

The UK's top banks were nearly £1 billion behind their Project Merlin target for lending to small businesses at the end of September, official figures revealed today.

Barclays, Royal Bank of Scotland, Lloyds Banking Group, HSBC and Santander UK lent £56.1 billion to small and medium enterprises (SMEs) in the first nine months of the year, the Bank of England said.

Under the Project Merlin agreement the banks said they would increase lending to SMEs to £76 billion this year, which equates to £19 billion in the first quarter, or £57 billion by the end of the third quarter.

However, the banks are on course to beat the target of £190 billion for gross lending to all businesses, including SMEs, after extending £157 billion in the first nine months of the year.

Terry Scuoler, chief executive of EEF, the manufacturers' organisation, said it was concerning that the target for SMEs, who face the most difficulties accessing finance, is not quite being met.

The Merlin agreement, unveiled in February, followed protracted talks between the top five banks and the Treasury over key issues such as bonuses and lending.

After the Bank published today's figures, Business Secretary Vince Cable said: "Today's figures show that while there is still much work to do, positive progress is being made on the quantity of bank lending available to businesses and they are on track to deliver more this year than before.

"It is vitally important to our economy that small firms can get access to the finance they need. The banks have agreed to lend £76 billion to small and medium-sized enterprises this year and I will be monitoring their performance against this target particularly closely."

The UK's top five banks all provided third quarter trading updates in the last four weeks and all said they were on course to meet the Merlin targets.

Santander UK said it had lent £3.19 billion to SMEs in the first nine months, while Barclays extended £11 billion in credit, RBS £30.7 billion, and Lloyds handed out £9.6 billion. HSBC said it was £38 million off its Merlin targets so far this year but did not give the total figure.

A spokesman for the Merlin banks said: "The Merlin banks are on track to meet their business lending commitments.

"The first nine months performance demonstrates the banks' commitment to providing businesses with the financial support they need to invest and grow and the significant progress made since February this year. However, the overall economic environment remains challenging and business demand remains weak."

John Walker, national chairman for the Federation of Small Businesses, said the Merlin targets did not address underlying problems in the banking sector and called on the Chancellor to make good on his proposal to introduce credit easing.

He said: "These targets are politically driven and don't address the lack of competition in the sector, as the main five banks control around 85% of the small business banking market.

"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 first unveiled plans to inject billions of pounds into UK business through a credit easing programme at the Conservative party conference in October.

The move would see the Government buy bonds issued by companies to provide much-needed finance for businesses struggling to secure loans on favourable terms from the banks and was seen by some as an admission that the Project Merlin lending agreements had failed.

PA

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