Government’s Loan Project Is Failing
Since the credit crunch, the main banks in the UK have severely tightened their lending criteria and have made it much more difficult for anyone to be accepted for a new loan, whether it is for a personal loan or a business loan, despite many of them receiving bail out loans from the government to try and improve their lending figures.
Last February, the government reached an agreement with the five major banks in the UK to increase the number of loans being offered, particularly for small businesses, with a gross lending target of £214.9 billion worth of new loans being set or the whole of last year.
The scheme, known as Project Merlin, was launched on 9th February last year and set a target of £190 billion worth of new business loans, with £76 billion of this being set aside for small and medium sized businesses.
Although the banks have met their overall target for new loans over the course of the year, one economist has said that Project Merlin has failed and that the original targets for the loan scheme were “fairly meaningless”.
Vicky Redwood of Capital Economics said that there were still plenty of reasons why the amount of lending on new loans was likely to contract over the course of the next twelve months, even though the loan targets had been met.
She commented that the lending target was based on gross lending figures and did not take into account loan repayments over the course of the year. Once loan repayments had been accounted for the amount of net lending from the banks had actually reduced by £9.6 billion, according to the figures from the Bank of England.
Ms Redwood also pointed out that the net amount of new loans to businesses has been shrinking for two years now and higher funding costs for banks were likely to reduce new loan numbers even further this year.
