Merlin target hit yet banks face criticism

Julian Harris
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UK BANKS are on track to meet their lending targets set by Project Merlin, the Bank of England confirmed yesterday, but critics attacked the figures as meaningless, with some business groups calling for more credit to stimulate growth.

Barclays, HSBC, Lloyds, RBS and Santander made £57.4bn available to businesses in the UK in the third quarter of the year, the Bank revealed, bringing the total to £157.7bn for the year to September.

The leading banks must hit £190bn for 2011 as a whole, with £76bn allocated to small and medium sized enterprises (SMEs).

In quarters one to three, £56.1bn was made available to SMEs, yet Michael Saunders of Citigroup said the figure did not equate to a “genuine overall improvement in the availability and cost of credit for small firms”.

“We suspect that, in aggregate, banks are meeting their Project Merlin targets by making credit available at a high price and on tough terms that few firms can afford to meet,” Saunders said.

The Bank has reported that net bank lending to non-financial companies fell by 3.4 per cent annualised in August, while lending to SMEs fell by 5.1 per cent year on year.

“These targets are politically driven and don’t address the lack of competition in the sector, as the main five banks control around 85 per cent of the small business banking market,” argued John Walker of the Federation of Small Businesses (FSB).

“Our members are telling us they are still finding it difficult to access finance,” added Brian Berry from the Federation of Master Builders (FMB).

A recent FMB survey showed that 57 per cent of its members reported that their bank “had made some form of adverse change to their lending policy towards the firm, either by withdrawing credit facilities or by increasing the cost of them”.