It followed the early release of data from the five largest UK banks which suggested that they are on course to meet the lending targets to businesses set by the coalition government under the Project Merlin agreement. The Bank of England will be releasing its figures this Friday.
Royal Bank of Scotland, Barclays, Lloyds, HSBC and Santander say that they have lent slightly more than £100bn to UK businesses in the first six months of 2011. This accounts for more than half of the annual target of £190bn and includes £76bn for the important small business sector.
However, concerns have been raised as to the make-up of those figures with Barclays, Lloyds, HSBC and Santander accused of including undrawn overdraft facilities in their Merlin data. According to BBC business editor Robert Peston, what that means is that “most of the banks have the ability to hit their small business lending targets by increasing the borrowing limits of their existing reliable customers, whether or not those customers have demanded or want an increased overdraft.” The use of gross lending figures rather than net lending in the Merlin data is clearly a cause for concern, particularly when June’s net lending figures were reported by the Bank of England to be -3.1%.
EEF, the manufacturers’ organisation, says that the intent being shown by the banks to get some lending flowing is a positive step but agrees that Project Merlin is not the final answer and is only a part of the changes that are required.
On the back of compensation for customers mis-sold payment protection insurance and the current Eurozone crisis, RBS announced a loss of £794 million for the first half of 2011 while Lloyds announced loss of £3.3 billion for the same period. Both Barclays and HSBC have joined Lloyds and RBS in announcing cost cutting measures across their businesses in recent weeks. So, is now really the time to expect banks to take on further debt?
The answer is yes, especially considering that the bulk of the current losses are related to a one-off insurance write-down. Banks are not being asked to do something that isn’t profitable. There are valid growth proposals that are still not finding the required finance. With this week’s announcement that June’s manufacturing output figures having taken a hit (down 0.4% compared to May), there is a strong case for the banking sector to ensure the continuation of structured growth.