Business calls for new approach after banks miss lending targets

BUSINESS leaders yesterday called for a “different approach” on lending practices after official figures confirmed that Britain’s biggest banks fell more than £1 billion short of their SME loan targets.

After taking loan repayments into account, the banks – Barclays, HSBC, Lloyds Banking Group, Royal Bank of Scotland and Santander – saw combined net lending slide in 2011, the Bank of England said, including a 3 per cent drop in the final quarter.

The figures also confirmed that the five banks missed gross lending targets for small businesses in 2011 by more than £1bn but beat the target for all businesses by £24.9bn..

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The Forum for Private Business said its members still routinely report problems with accessing finance from the major high street lenders, with many having to seek alternative forms to aid cash flow, including credit cards and even loans from friends or family.

Phil Orford, the forum’s chief executive, said: “The banks have missed the lending targets for small firms, but not by such a huge amount as suggested by the number of small firms who still complain to us about problems accessing high street finance.”

Neil Blake, senior economic adviser to the Ernst & Young Item Club, said the figures came as “no surprise” and warned that lending to SMEs would continue to be hit as banks reduce their credit risk.

“The average interest rate on smaller loans, £1 million or less, is already double that charged on loans of £20m or more and we expect this trend to continue,” said Blake.

Chancellor George Osborne has confirmed that the Project Merlin agreement will not be repeated this year. Instead the UK government plans to launch its credit easing programme, which will initially see £20bn made available over the next two years under a national loan guarantee scheme.

However, Andy Willox, the Federation of Small Businesses’ Scottish policy convenor, said: “We need a different approach from the UK government with a focus on developing new means of funding the real economy.”