Major banks fail to meet their lending targets

Britain's small businesses yesterday called for more competition in the banking market after the major banks failed to meet lending targets under their Project Merlin agreement with the Government.

The banks provided gross lending of £47.3bn in the first three months of this year, the Bank of England reported. The total was roughly in line with achieving their £190bn annual total but loans for small and medium enterprises (SMEs) came in about £2bn short at £16.8bn.

HSBC, Royal Bank of Scotland, Barclays, Lloyds Banking Group and Santander signed up to make credit available under Project Merlin in February. The agreement on SME lending was seen as the most important part of Project Merlin because those businesses make up more than half the economy. They have also found it harder than bigger companies to raise new capital.

The failure to meet the target comes ahead of today's grilling by MPs of Sir John Vickers and his team from the Independent Commission on Banking (ICB) whose remit includes competition boosting competition.

John Walker, the chairman of the Federation of Small Businesses, said small firms were being turned down for loans, hitting their confidence.

He added: "Lending targets by their very nature miss the big picture and unless there is a fundamental shift in the make-up of the banking sector in the UK, small firms will continue to struggle to access affordable finance.

"The Independent Commission on Banking must go further and push for far greater competition in banking.

"There is a disincentive for new market entrants and small businesses need to see it made easier for new banks to start up and open branches that are accessible to, and targeted at, small business customers."

Of Britain's two state-backed SME lenders, Lloyds Banking Group has said it is on track for its annual target. But SME lending at Royal Bank of Scotland, the market leader, was down 7 per cent in the first quarter.

The Treasury Committee has called for various measures to boost competition in SME banking but the ICB's interim report last month concentrated on the current account market.

The banks claimed small firms showed muted demand for credit because they were wary about the financial outlook.

But Vince Cable, the Business Secretary, warned that the banks would face further Government action if they did not meet their agreed targets. Mr Cable said: "There is a serious problem with lending to good, small companies. We looked to the Merlin agreement to rectify the problem and, though these are early days, we want to see significant improvement over the next few months."

Separately, Lloyds announced a management team for "Project Verde", its forced disposal of 600 branches under a European Competition agreement.

Paul Pester, a former Virgin Money, Santander and Metro bank executive, will lead the sell-off.

Lloyds has accelerated the sale in a move that could make it difficult for the ICB to demand it adds more branches to the sale.