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SME lending still short of Project Merlin target

SME lending still short of Project Merlin target

Project Merlin was supposed to get the major banks lending more money to small businesses, but so far it is falling short of its target.

Despite being behind target at the end of Q2, gross lending to SMEs actually decreased in the third quarter; down from £20.5 billion to £18.8 billion.

In February, the Big 5 banks promised to lend £190 billion to businesses this year. £76 billion was to go to SMEs with a turnover of less than £25 million.

Although the banks should meet the headline commitment of £190 billion, they have only lent £56.1 billion to small businesses – 0.9 billion short of the nine-month target. According to the banks, businesses simply don’t have the appetite for loans.

Business groups are now concerned that the lack of competition in the banking sector is having an adverse effect on the cost of credit.

John Walker, the FSB’s national chairman, explained that the big five banks serve around 85% of the small business community. As well as more competition, small businesses must be able to access new lines of credit otherwise they will not be able to help the economic recovery.

Andrew Haldane, the executive director of financial stability at the Bank of England, has called for a relaxation of the rules surrounding lending to small businesses.

He says lending should not be so capital-intensive, and the calculations for risk weightings should be relaxed. The current system of weighting assigns higher levels of risk during a crisis and this compounds the credit shortage. Banks should be able to free up credit from their capital reserves, he added.

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