Banks miss targets for lending to small business

Britain's five biggest banks havenarrowly missed government-agreed targets to lend small UK businesses a total of £38bn in the first half of the year, after HSBC and Royal Bank of Scotland fell short of their targets.

RBS will confirm today that it lent small and medium-sized enterprises (SMEs) about £15.5bn in the six months to 30 June, missing the target of about £17bn that it agreed with the Government under the Project Merlin initiative earlier this year.

However, RBS and the other four banks that have signed up to the initiative – Lloyds Banking Group, Barclays, HSBC and Santander UK – all met or exceeded their overall business lending targets set out in Project Merlin.

In February, the five banks agreed to lend a total of at least £190bn to British companies this year. About £76bn of that was earmarked for SMEs, meaning that by the end of June the banks should have lent small companies £38bn. However, the loans they extended actually came in at a shade below £37bn.

The Project Merlin agreement is concerned with gross – rather than net – lending and therefore takes no account of the considerable borrowings that companies have paid back this year.

Bob Diamond, Barclays' chief executive, said this week that small businesses lacked the confidence to invest and grow because the economy is so uncertain, and that this was reducing the demand for loans. He revealed that the cash balances of the bank's small-business customers, those with annual revenues of £5m or less, had risen 41 per cent in the first half.