Banks accused of lending failures

Barclays, Royal Bank of Scotland, Lloyds Banking Group, HSBC and Santander UK lent £16.8bn to small and medium enterprises (SMEs) in the first three months of the year, the Bank of England said.

Under the Project Merlin agreement the banks said they would increase lending to SMEs to £76bn this year, which equates to £19bn in the first quarter.

Business leaders and Labour said the figures showed Project Merlin was not working, but the banks said they had made strong progress in the face of low demand.

The agreement, unveiled in February, followed protracted talks between the top five banks and the Treasury over key issues such as bonuses and lending.

After the Bank published the figures, Business Secretary Vince Cable said there was a “serious problem” with lending to good, small companies.

He said: “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.

“We will monitor the banks’ performance extremely closely and if they fail to meet the commitments they have agreed we will examine options for further action.”

The figures showed the banks were on course to meet overall business lending targets of £190bn this year, equal to £47.5bn for the quarter, as they lent £47.3bn in the period.

But the Federation of Small Businesses (FSB) said a recent survey of its members found only 16 per approached the bank for credit and of those 44 per cent had been refused.

The national chairman of the FSB, John Walker, said lending targets “miss the big picture”.

He said: “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.”

Labour Shadow Chancellor Ed Balls said it was early days but “the signs are that the Project Merlin plan is not working”.

He said: “(Chancellor) George Osborne needs to explain to businesses up and down the country what more he will do to get the economy moving and get the banks lending to small businesses so that the Government’s targets do not continue to be missed in the next quarter.”

Santander is the only bank to have revealed its own lending commitments under the Project Merlin agreement, and is currently on track to hit its targets.

A Santander spokeswoman said: “We have pledged to lend £6.7bn to British businesses this year, with £4bn set aside for SMEs.

“During the first quarter we provided £2bn of new lending, of which £1.1bn was for SMEs.”

The British Bankers’ Association said the figures showed the “stretched” lending intentions for SMEs were nearly matched but the available capacity was not fully taken up due to muted demand.

A spokesman for the Merlin banks said: “These numbers demonstrate the determination of the Merlin banks to lend to viable businesses – it has been a solid start to the year.”

But David Frost, director general at the British Chambers of Commerce, said banks should do more to improve communication with businesses to boost demand.

He said: “Many companies complain about strained relationships with banks both during and after the recession. Over-centralised processes, unclear decision-making and a lack of proper, local relationship management from banks, mean that in many cases, business customers have been put off applying for finance.”