Cable threatens banks on lending

Mr Cable said the government was putting pressure on the banks to increase lending to SMEs

Business Secretary Vince Cable has said the government is willing to take “further action with tax on banks” if they do not increase lending to small and medium-sized enterprises (SMEs).

Mr Cable told MPs on the Business Committee that the level of lending to SMEs was a “serious problem”.

Under the Project Merlin agreement, the UK’s four biggest banks are committed to lending £76bn in 2011 to SMEs.

Later, the bosses of the four biggest banks will also give evidence to MPs.

The Treasury Committee will hear first from Stuart Gulliver of HSBC and Stephen Hester of Royal Bank of Scotland, and then from Bob Diamond of Barclays and Antonio Horta-Osorio of Lloyds.

They will answer questions on the Independent Commission on Banking.

“The chancellor and prime minister have made it clear that if we don’t get results, they have said we should take further action with tax on banks,” Mr Cable said.

Under Project Merlin, the amount the banks agreed to lend to SMEs equates to £19bn a quarter, however, in the first three months of the year £16.8bn was lent.

Mr Cable acknowledged that while Project Merlin did not set specific quarterly targets, there was now a “catch-up element” involved.

He said there was a mixture of factors involved in why banks were not lending as much as the government wanted.

One was the level of demand – banks say it is weak, but businesses say they are being discouraged from applying in the first place.

The government’s requirement that the banks hold more capital was also having an effect, he said, as banks were being more cautious in their lending.

He also said that banks had gradually moved away from “relationship banking”, meaning that “at a time of crisis like this they don’t have the infrastructure in place to assess the risk of lending to small business”.

However, he did say he had anecdotal evidence that some banks were changing their behaviour, highlighting Lloyds as taking the issue very seriously and meeting their targets.

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