Banks still not lending enough to SMEs, but of course, it’s not their fault

There is more trouble ahead for the high street banks, as new figures published show that they are falling short in their lending targets to small businesses by billions of pounds. The loan targets had been agreed under ‘Project Merlin’ a controversial pact with the government that was signed back in February after lengthy discussions between the Treasury and the banks.

Banks face fresh anger as figures published showed they are falling billions of pounds short of promised targets for lending to small firms. The lending targets were agreed under the controversial ‘Project Merlin’ pact with the government. After lengthy discussions, the banks agreed to provide extra funding for small businesses as an attempt to stave off the potential clampdown on their bonuses.

The big five banks – Barclays, HSBC, Royal Bank of Scotland, Santander and Lloyds, should have by now lent small businesses £19bn to stay on target. The figures released by the Bank of England show that they have only lent $16.8bn to small and mediums sized businesses (SME’s) in the 3 month period ending March 2011.

The banks had agreed with the government that they would increase their lending to SME’s up to £76bn in 2011, equating to £19bn in the first 3 months and each subsequent quarter. The figures do show, however, that the banks are on course to meet their overall targets of business lending of £190bn in 2011, as they have lent out £47.3bn in the first quarter.

Although the banks aren’t legally obliged to disclose their individual target, the Bank of Scotland, owned by the tax-payer, admitted that its lending had gone down this month. One banker, who asked to remain anonymous, said that they had never promised to meet the lending targets. He said they had promised to make specified amounts available to lend and that they had done that, but demands for loans from SME’s were muted at the minute.

The Chief Economist for the manufacturers’ organisation EEF, Lee Hopley, said that these figures were disappointing and that they indicated there was still no improvement in the conditions put on small businesses to obtain credit.