Debt: Banks Attempt More Lending

Banks Match Project Merlin Targets

Banks Match Project Merlin Targets

The five largest UK banks have increased lending to companies throughout the past three months and brought targets up to meet the government’s standards. According to the Bank of England, new loans were £53 billion in the second quarter. They had been £47.3 billion in the first quarter.

Despite concerns, lending to small businesses and those in the middle rose 22%, to £20.5 billion. As part of the Project Merlin deal with the government, which was created in February, banks have to lend at least £190 billion in 2011 and help boost economic recovery.

Banks on Target
After information from the first quarter revealed less than stellar data, Business Secretary Vince Cable criticized the companies, calling for better results for the rest of the year. With the addition of the second quarter results, the banks had met 53% of their total goal for the year, with six months left to go.

Banks are still working on providing the £76 billion promised to small to medium sized firms, having only met 49% of that target. “We are still strangling and starving businesses in the UK of the funding they need to grow the economy.
“There are plenty of new entrants that want to come into the market space here and lend to small businesses,” said Andrew Cave, from the Federation of Small Businesses.

Overall Trends Still Low
Mr. Cave was encouraged by the progress made, but hoped that the government would make changes to open the lending market to further competition for small businesses. However, these poorer results may show the situation as it is.

According to David Birne, insolvency partner at HW Fisher & Co., there isn’t enough lending at the moment. “Nobody expects the banks to lend to the unbankable, but in many cases they are even turning their backs on perfectly viable businesses,” he said.

The Bank of England also revealed “Trends in Lending” data, which showed a decrease in lending overall, adjusting for loan renewals and ignoring credit that has expired. Lending to UK businesses fell in the second quarter by £4.4 billion, after an earlier decrease of £2.8 billion. While there is still hope in lending, businesses remain in a difficult position.

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