Project Merlin: Banks fall short in lending to SMEs

Five major UK banks have failed to meet their 2011 lending targets to small and medium sized enterprises (SMEs) as laid out in Project Merlin, figures from the British Bankers' Association (BBA) show.

Despite meeting overall business lending commitments, Barclays, HSBC, Lloyds Banking Group, RBS, and Santander UK, lent £74.9 billion to SMEs in 2011 - £1.1 billion below the £76 billion target.

As part of the Merlin Agreement announced in February last year, both the Government and five main UK banks pledged to 'recognise their responsibility to support the economic recovery' by committing to lend more, especially to small businesses.

Interestingly, the banks delivered £214.9 billion of gross new lending to UK businesses last year, exceeding their overall target by nearly £25 billion. However, it seems that this failed to filter down to SMEs who have struggled to gain finance during the recession.

The Merlin Agreement had taken into account a lower demand for business finance when calculating its 2011 lending targets, and blamed the shortfall on fewer SMEs applying for credit.

A spokesman for the Merlin banks said: "As the Bank of England Credit Conditions Survey reported in January 2012, the demand for credit from small businesses has declined in three out of four quarters in 2011.

"The bank's 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."

However, the chairman for the Federation of Small Businesses (FSB), John Walker, called the failed lending targets to SMEs 'extremely disappointing'.

"It is even more disappointing, given that the Project Merlin targets were set artificially low in the first place," said Walker.

The FSB, which represents 200,000 small companies, said that a third of members felt they had missed their growth opportunities and feared being uncompetitive as a result of not being able to access finance.

Walker continued: "Now more than ever it is imperative that the Government embraces plans for alternative sources of finance and put in place its credit easing scheme."