Under Project Merlin, four of the ‘Big Five’ banks have beaten their lending targets, while RBS lent £3.3bn less than its target, leaving a shortfall of £1.1bn in loans for small and medium sized companies.
Lloyds, HSBC, Santander and Barclays all met their lending targets to SMEs (Small to Medium-sized Businesses). Santander loaned £4.3bn – £300m more than the target figure – while HSBC hit its goal of £11.7bn. RBS lent approximately £3.3bn less than its target, and is largely blamed for the failure.
Many criticise Project Merlin as being completely ineffective from the day of its launch, and accuse the Government of not putting enough pressure on the banks to lend money to small firms, largely seen as risky financially.
The national chairman of the Federation of Small Businesses, John Walker, described the failure to hit the £76bn target for loans as extremely disappointing.
“It is even more disappointing, given that the Project Merlin targets were set artificially low in the first place,” he added.
Shadow Business Secretary Mr Chuka Umunna argued that no measures had been put in place to ensure banks were forced to lend. “Project Merlin lies in tatters and it is clear that its promises were not worth the paper they were written on,” he said.
While the project’s target was not met this year, the amount lent by the Big Five banks as
a collective has increased dramatically since 2010, from £66bn in 2010 to £74.9bn in 2011.
A spokesperson for the Big Five banks defended them, citing last month’s Bank of England Credit Conditions Survey, which said that the demand for credit from small businesses fell in three out of four quarters in 2011.
The spokesperson said in a statement: “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.”
Although Project Merlin may have made its mark, the Government is to scrap the project for 2012, instead introducing a new £20bn credit easing system. This aims to lower the cost of borrowing for SMEs by providing government guarantees for banks’ funding.
Lee Hopley, chief economist at manufacturers’ group EEF, warned that the low number was in direct conflict with the Government’s growth aspirations. “While meeting or coming close to the lending targets agreed in Project Merlin demonstrates banks are true to their word and are showing some intent to lend, the reality is that SMEs continue to be frustrated by the cost and terms and conditions around lending, with some opting out of using external finance altogether. This cannot be good for growth.”