Banks miss lending targets to SMEs

Royal Bank of Scotland is thought to be the culprit for the shortfall in lending although it will not report results until later this month

Published: 2:55pm, 10th February 2012
Updated: 12:04pm, 12th February 2012

The UK's banks missed targets for lending to smaller businesses in 2011 by more than £1 billion, according to new figures.

The five banks - Lloyds Banking Group, Royal Bank of Scotland, Santander, Barclays and HSBC - loaned £74.9 billion to small and medium-sized enterprises (SMEs) in 2011, the British Bankers' Association said. They had agreed with the Government in the Project Merlin talks to make £76 billion of lending available.

However, the banks loaned a total £214.9 billion to UK businesses, exceeding their target of £190 billion.

It is understood that RBS, which is 83% owned by the taxpayer, is the culprit for the shortfall in SME lending although it will not report its performance until full-year results later this month.

The BBA said the overall lending figure demonstrated the banks' commitment to helping UK businesses and pointed to Bank of England data that showed SMEs' demand for credit had fallen in three out of the last four quarters.

A spokesman for the Merlin banks said: "The banks' 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."

But the failure to hit targets will reignite the row over banking lending amid large pay-outs to staff. It is understood that the Project Merlin agreement will not be repeated this year and even the part-nationalised banks RBS and Lloyds will not be set targets by the Government.

In addition, it is unclear whether Chancellor George Osborne has put any penalties in place for the banks' failure to hit one of the targets. The figures are set to be officially released by the Bank of England on Monday but were provisionally made public through the BBA.

Santander and Barclays have said they have hit their targets under the agreement, while Lloyds said it exceeded its measure on SME lending and has yet to disclose its overall performance.

RBS chief executive Stephen Hester defended the performance in interviews this week, pointing out that its lending will not be far short of all the other banks combined. He added: "There is no bank in this country coming close to punching above their weight in the way we are. Forget Project Merlin and how it's defined - that's damn impressive. People have lost sight of that."