Banks miss small business lending targets

Banks fell short of targets agreed with the government for lending to small firms in the first three months of this year, although they remained on track to hit their overall goals.

Prime Minister David Cameron said the banks looked willing to fulfil their pledge after he indicated last week that they may face further taxes and levies should they fail to meet their commitment to provide enough loans to the economy.

The banks involved in the deal - called "Project Merlin" - said smaller firms' demand for credit remained muted due to the economy's sluggish recovery But business associations said lending conditions were too tough.

The banks' gross lending facilities amounted to £47.3bn in the first three months under the "Project Merlin" agreement, data published on the Bank of England's website showed.

This was roughly in line with the £47.5bn which the banks need to provide on average per quarter to meet their obligations under a deal made with the government in February.

However, lending facilities to small- and medium-sized businesses came in at £16.8bn - around £2bn short of the target.

The Project Merlin agreement with the banks was aimed at curbing bonuses and boosting lending to firms that has been weak since the global financial crisis hit.

Cameron hinted last week that banks could face new taxes if they did not fulfil their agreement to boost lending to businesses.

Cameron reiterated his warning, though he also warned against rushing to conclusions, adding that he felt the banks did want to achieve their lending goals.

"To rush to conclusions on the first few weeks of figures would be a bit too hasty," he said during a visit to Milton Keynes in central England.