Banks loaned SMEs less cash in 2011

Feb 13 2012

Lending by Britain's top five banks shrank every quarter last year - an embarrassing blow to the Chancellor's Project Merlin agreement.

After taking loan repayments into account, Lloyds Banking Group, Royal Bank of Scotland, Santander, Barclays and HSBC loaned out less money in 2011, including a 3% drop in the final quarter, the Bank of England said, .

The figures show that the five banks missed Merlin's gross lending targets for small businesses in 2011 by more than £1 billion but beat the target for all businesses by £24.9 billion.

Royal Bank of Scotland - 83% owned by the taxpayer - is the culprit for the shortfall in small business lending. The other four banks beat their targets.

Under the Project Merlin agreement, the five banks said they would increase lending available to small and medium enterprises (SMEs) to £76 billion and increase lending available to all businesses to £190 billion.

A spokesman for the banks said: "The banks' efforts to encourage customers to come forward with borrowing proposals are set against this overall challenging economic environment. The business demand for credit remains weak."

Lee Hopley, chief economist at manufacturers' organisation EEF, said SMEs continue to be frustrated by the cost and terms and conditions of borrowing.

Ms Hopley said "a lack of competing sources of finance outside of banks remain part of the problem" and added: "The challenge for 2012 is how to offset the forces dampening demand for finance by improving the conditions of supply."

The Project Merlin agreement will not be repeated this year, although the Government plans to launch its "credit easing" programme which will make £20 billion available over the next two years under a National Loan Guarantee Scheme.

The scheme will issue low-interest loans and overdrafts to businesses which have a turnover of less than £50 million.