Cable gives banks more grief over small business lending

The business minister says banks' defence that there isn't enough demand doesn't hold sway any more.

by Emma Haslett
Last Updated: 27 May 2011
Eh up – Vince Cable’s on the warpath again. The business secretary has said he’s worried banks will miss the lending targets agreed a part of Project Merlin when quarterly lending figures are published on Monday. The deal meant banks have to set aside £190bn a year to lend to businesses, as well as boosting their small business lending to £76bn. But now Cable has echoed a statement by the Prime Minister earlier this week warning that if they don’t up their game, the Government will simply up their taxes instead. Naturally, bankers aren’t taking the accusations sitting down, pointing out that they’ve done everything they can to make the money available to business – it’s just that the demand isn’t there.

When the figures are published on Monday, they’re expected to show that banks have lent £47bn to businesses, including about £17bn to SMEs. Which shows that while they’re on track to meet that £190bn target by the end of the year, lending to small businesses will fall about 13% short of the £76bn agreed. And the state-owned banks are no better: RBS, which is 83% owned by taxpayers, says new lending to small businesses fell by 7% to £6.7% in the first quarter.

Bankers’ defence that the reason they’re not lending is simply because there isn’t enough demand isn’t holding much sway with the Government. Small businesses have repeatedly claimed that while they’d like to borrow, the cost is too high. In other words, you can take a horse to water, but if you’re going to charge it 5% above base rate and ask it to leave its house as security, expect it to go thirsty.

Now, the Government has put its foot down, saying if businesses aren’t borrowing, banks are simply going to have to try harder to drum up business. As one Treasury spokesman put it: ‘We’re not going to stand for any wriggling nonsense… they can’t just sit back and say there’s not enough demand.’

Bankers (not surprisingly) aren’t too pleased with that. One harassed-sounding senior banker today accused the Government of ‘moving the goalposts’. ‘These are not commitments and they never were,’ he told the FT. ‘We promised to make lending available if the demand was there but, especially among smaller companies, it is not there.’

Despite banks’ protestations, though, both Vince Cable and the PM are emphatic about the fact that they’re going to have to do something to encourage more borrowing. That could take the form of more aggressive marketing, or even (gasp!) lower borrowing rates. Either way, now is the time for bankers to focus on small businesses. Even if the rest of the City would rather discuss the nocturnal activities of Fred ‘the Bed’ Goodwin…

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