Top banks ‘falling short of lending targets for small businesses’

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The UK’s top banks face further public outrage today as the Bank of England reveals they are on course to miss crucial Project Merlin lending targets.

Barclays, Royal Bank of Scotland, Lloyds Banking Group, HSBC and Santander UK agreed with the Government to increase lending to small and medium enterprises (SMEs) to £76bn this year. The banks also pledged to boost overall business lending to £190bn.

But it has been reported that the Bank, in its first quarterly lending data report, is expected to show the banking giants are falling around £2bn to £3bn short on the SME target of £19bn in the first three months of the year.

The Project Merlin agreement, unveiled in February, followed protracted talks between the top five banks and the Treasury over key issues such as bonuses and lending. Some economists expect the banks will claim there is no demand for lending – not that they are unwilling to offer credit.

The banks will say they only agreed to increase “lending capacity” and there is nothing they can do in the absence of demand for new borrowing.

But Vicky Redwood, economist at Capital Economics, said businesses claim they are not asking for the loans because they do not think they will get them.

She said: “The agreement left unclear what action the Government might take if the banks failed to uphold their promises.

“In any case, the Government is unlikely to do anything yet. After all, the agreements were for 2011 as a whole and it is only fair to let the banks try to get back on track.”

The Government and the UK’s biggest banks launched a £2.5bn fund last week to provide loans to small and medium-sized businesses.