So, the so called Operation Merlin couldn’t give the small business Arthurs the strength to pull the sword of lending from the stone of the big banks’ vaults.
Where’s Sir Lend-a-Lot when you need him?
The banks were given a target of lending out £19 billion to small and medium enterprises (SME) in the first quarter of 2011, but only £16.8 billion made its way out of the banks’ coffers.
Reaching the lending targets was part of the agreement, which would then see extra bank taxes being shelved.
The banks are however just about on target to meet their overall annual lending commitment of £190 billion (£47.5 billion a quarter) as they managed to lend a total of £47.3 billion in the first quarter.
So the banks are lending but not to the people the government wants them to lend to.
The British Chamber 6f Commerce said that while high overdraft and loan charges persisted together with central decision making that ignored local conditions then the situation would not improve.
The British Bankers’ Association however argue that they cannot lend unless people ask for the loan. The banks have created the lending facilities but SMEs they said are choosing not to use them.
Lloyds, Santander, Barclays, HSBC and RBS all signed the Project Merlin agreement with the government in February to make more money available to British SMEs.
Individual bank performances are not disclosed on the Bank of England figures but RNS is believed to have fallen short of their targets whilst Lloyds claim to have exceeded theirs. Santander has said that of the £4 billion it had pledged this year; £1.1 billion had been lent in the first quarter so they are on track to deliver.
Many senior banking executive pay packets are now linked in some way to these lending targets.
So, the government is trying to force an economic recovery and gain political kudos by standing behind the banks with a whip shouting ‘Lend! Lend! Lend!’ For their part the banks are trying to keep more tax off their backs and their executives are trying to earn more so are shouting ‘Borrow! Borrow! Borrow!’ at the SMEs whilst maintaining an acceptable risk profile.
But the SME owners are evaluating their businesses, looking at the government and banks and asking ‘Why? Why? Why?’
For SMEs (well, for any business for that matter) borrowing is leverage for improvement. It is not their responsibility to meet these targets.
And the banks should not be expected to put themselves at an unacceptably high commercial risk when lending just to make the government look good.
Maybe the government needs to push help directly at SMEs, possibly by reducing their tax burden?
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Merlin always sounded like it belonged in a Command Economy, which isn’t far from what we’ve got since we own the banks. Trying to force supply when demand isn’t there at the price on offer just puts the banks at greater risk of losing money. I’m glad they’re not competing for the business with cheaper rates.