News

November 22, 2011

Banks miss Project Merlin lending target

High street banks have fallen short of targets for lending to small firms, according to new figures from the Bank of England.

Under the Project Merlin agreement – set up between the Government and major high street banks this year to boost loans to businesses – Britain’s ‘big five’ lenders pledged to lend £190 billion this year, including £76 billion to small businesses.

But the Bank of England’s latest quarterly review found that advances to small and medium-sized firms fell to £18.8 billion in the three months to the end of September – down from £20.5 billion in the previous quarter.

The figures suggest that although the banks are on track to meet the broader target of business lending, loans to small firms have now fallen short by almost £1 billion to date.

The banking industry has blamed low lending levels on poor demand from businesses, which it claimed are still unwilling to borrow in a tricky economy.

But John Walker, national chairman of the Federation of Small Businesses said banks had “yet again missed the small business target”.

The Merlin agreement failed to address the “lack of competition” in the banking sector, Walker said, with the main five banks “controlling around 85 per cent 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,” he added.

Commenting on behalf of the banks, a British Banking Association spokesman said that lenders were “on track” to meet overall business lending targets.

“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,” he said.

But the overall economic environment was still challenging, the spokesman said, and business demand for loans remained “weak”.

• Banks should be bribed to boost lending to small firms