LONDON (AP) — The Bank of England said Monday that net lending to businesses by Britain's five largest banks shrank last year.
The U.K. coalition government's so-called "Project Merlin" deal involved the five leading banks — Barclays, HSBC, Lloyds Banking Group, RBS and Santander UK — agreeing to make easier for smaller firms to access vital credit.
Monday's data on Project Merlin commitments agreed by the banks and the government showed that the five banks fell about 1 billion pounds ($1.6 billion) below their 76 billion pounds gross lending target for smaller businesses. However, they beat their target for gross business lending by 25 billion pounds with a total of 215 billion pounds.
Loan facilities actually drawn by borrowers, which excludes rollovers, was 100 billion pounds. Net lending was 9.6 billion pounds below the 2010 total.
However, a Bank of England report last month said demand for credit by those companies was muted in the fourth quarter and not expected to rise in the current quarter.
"The business demand for credit remains weak," the British Bankers Association said Monday.
The Project Merlin targets "were fairly meaningless in the first place and there are plenty of reasons to expect credit growth to remain a constraint on the economic recovery for a while yet," said Vicky Redwood, chief U.K. economist at Capital Economics.
"It is net lending that matters for the real economy," she added.
Lee Hopley, chief economist at EEF, a manufacturers' organization, said small and medium-sized companies "continue to be frustrated by the cost and terms and conditions around lending, with some opting out of using external finance altogether."
The Project Merlin agreement is not being repeated this year.
Barclays PLC, the first of the big British banks to report annual earnings, said on Friday that it exceeded both of its Project Merlin targets with grossing lending to business of 43.6 billion pounds and 14.7 billion pounds to small and medium-sized enterprises.