Banks fail to meet business lending targets

Britain’s major High Street banks have come under fire from business groups after they failed to meet government lending targets to small and medium sized businesses.  According to industry figures published in the Guardian, bank lending to small and medium sized companies (SMEs) was more than £2 billion short of the target set as recently as February 2011.

Business lending falls £2 billion below target

Under the ‘Project Merlin’ deal signed in February 2011, Britain’s five main banks agreed to increase their lending to small businesses in return for ministers dropping plans to tax bank bonuses.

Barclays, Santander, HSBC, Lloyds and the Royal Bank of Scotland pledged to increase their lending to SMEs to £76 billion in 2011, a figure that equates to £19 billion in the first quarter.  However, the five banks fell around 11.5 per cent short of this target in the first three months of 2011, lending just £16.8 billion.

The government defended the Project Merlin deal with Prime Minister David Cameron saying that it was ‘a bit hasty’ to base the success of the plan on one quarter’s results.  However, the PM also warned banks that they would face new taxes if they failed to honour their side of the agreement.

The Guardian reports that ‘the shortfall could almost wipe out a £10 billion boost to small business borrowing this year predicted by the chancellor, George Osborne, when he agreed wide-ranging commitments with the banks on providing extra lending.’

Bank bosses could face pay cuts of they fail to meet business lending targets

The Chancellor has also been forced to remind bank bosses that they face pay cuts if the targets for business lending are not met.  Banks also face the prospects of increased taxes if the lending target of £76 billion is not met in 2011.

A Treasury spokesman said: “These lending commitments will be part of the performance metrics of each bank’s chief executive and senior managers responsible for business lending.

“If a bank does not meet the commitment, its chief executive and senior managers responsible for business lending will not receive the maximum pay and bonus as a result.”

To date, Santander is the only bank to have revealed its own lending commitments under the Project Merlin agreement and the bank which now owns Abbey and Alliance and Leicester has confirmed that it is currently on target to meet its business lending commitments.

A Santander spokeswoman said: “We have pledged to lend £6.7 billion to British businesses this year, with £4 billion set aside for SMEs.  During the first quarter we provided £2 billion of new lending, of which £1.1 billion was for SMEs, keeping us well on track to deliver this commitment.”

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