Santander in talks with Treasury over lending

Santander is holding direct talks with the Treasury after walking out on collective industry negotiations over bonuses and lending targets.

The Spanish-owned bank, which bought the Abbey and Alliance & Leicester brands in recent years, is now holding unilateral talks about setting its own levels of lending to small businesses, sources close to the bank said.

The move comes after it pulled out of industry negotiations with the Treasury, known as Project Merlin, which were designed to strike a deal on this year's bonus round, lending to small and medium-sized businesses and to create a joint fund to contribute to David Cameron's Community Bank to support worthy causes.

It is understood Santander is still looking at taking part in the Community Bank, but has withdrawn from all other parts of the talks.

It is believed an agreement between Santander and the Treasury over its 2011 lending commitments will be reached in the next few days.

Santander increased lending to small businesses by 23% in the first nine months of 2010.

It is thought the bank believes the issue of setting limits on bonuses is not relevant, as it has no investment banking arm and pays out far smaller windfalls than many of its big UK rivals.

But while average staff bonuses are smaller, the group handed its highest-paid UK executive a total package of £3.5 million in 2009, the most recent year for which figures are available.