Of Special Interest


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14th February 2012

Project Merlin 'success' as UK banks reduce lending to business

The British Bankers Association announced that the five largest retail banks had met their 2011 lending targets agreed with the British Government for lending to business. The five banks delivered £214.9bn (€257.0bn $338.9bn ¥26,313bn Y2,133bn) of gross new lending to business.

“The Merlin banks have met their overall business lending commitments. This performance demonstrates the banks’ commitment to providing businesses with the financial support they need to invest and grow and the significant progress made this year. . . .

“The bank’s 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.”

Mark Hoban, Treasury financial secretary, said: “It’s good news that lending to British businesses has increased by 20 per cent over the last year as a result of the Merlin agreement, with lending to SMEs also up by 13 per cent.
“Ensuring that businesses can access the credit they need to grow and create jobs is vital, which is why the government is now making up to £21bn of guarantees available through credit easing. But banks need to play their part by continuing to support British business going forward.”

The overall lending target was exceeded by 13%. Lending to smaller companies was £1.1bn short of the £76bn target, included within the overall figure.
The Government and BBA had rushed their self-congratulatory announcements out the previous working day to the Bank of England figures - showing a £9.6bn fall in lending to businesses. In order for the banks and government to achieve their 'success' for 2011 the two sides chose to use the irrelevant measure of gross lending facilities. The major problem with this measure is that loans ended either at their natural term or on demand by the bank can, as in 2011, outweigh the gross lending thus leading to a fall in overall lending. The banks can also offer some 'safe bets' more money than they need further increasing the facility figure without actually lending more.

Project Merlin is a sorry tale of political games rather than meaningful measurement and pressure on the UK banks to help UK business.