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Project Merlin proves less than magic

Net lending to small businesses is down 6%

Even with targets for the major banks, net lending – the amount repaid and the amount of loans granted – to small businesses in the year to November was down 6%.

The official verdict on the Project Merlin agreement, signed a year ago on Thursday, will be published on Monday and, given the data published so far, will again show that net lending will be negative.

Even so, Stephen Hester, chief executive of Royal Bank of Scotland, insisted on Wednesday that the bailed-out bank had a “terrific story” on lending and that it had lent to small businesses “more or less as much as all of the other banks put together”.

RBS has a market share of up to 30% to small businesses but had been lending up to 50% of the market.

The Project Merlin deal on lending signed between the banks (RBS, Lloyds Banking Group, Barclays and HSBC and Santander) was based on gross targets to lend £190bn in 2011 – up from £179bn in 2010. Some £76bn was to go to small businesses.

Yet the now forgotten coalition agreement for government promised “consideration of … the use of net lending targets for the nationalised banks”.

As Project Merlin ends, the government does not have any plans to reimpose targets on the banks, nationalised or not although the industry is expected to start making noises about voluntary targets in the coming weeks.

Lord Oakeshott, the Liberal Democrat peer who resigned a year ago as his party’s spokesman in the Lords over the Project Merlin deal, argued that it is time to put new targets on the banks. “We must impose net lending targets for SMEs for nationalised banks as stated in our coalition agreement and set a date for separation of casinos such as Barclays Capital from their mainstream banks. Then we must a set a date for removing the taxpayer guarantee on the investment banks.” © 2012 Guardian News and Media Limited or its affiliated companies. All rights reserved. | Use of this content is subject to our Terms & Conditions | More Feeds