Osborne to drop Merlin lending targets as SME loans lag

While lenders are broadly on track to meet their overall target of 190 billion pounds, lending to small firms may fall slightly short of the 76 billion target.

Figures published so far by four of the five banks show credit facilities to SME's in 2011 came in at 63 billion pounds, suggesting the final outcome will be lower than expected.

The BoE's own data shows that net lending by the Project Merlin banks -- HSBC, Barclays, Royal Bank of Scotland, Lloyds Banking Group and Santander -- fell by 9.6 billion pounds in 2011.

Part-nationalised Lloyds said on Friday it lent 12.5 billion pounds to SMEs in 2011, ahead of its target of 11.7 billion.

CREDIT EASING

Chancellor George Osborne has already flagged that he doesn't consider lending targets to be a permanent solution, saying that credit easing will help channel money directly to where it is most needed.

Critics of the scheme have argued that the targets are of little use, as they only measure gross lending, not net new lending and gauge only credit facilities made available rather than how much money has actually been lent.

In reality, many small firms have still encountered difficulty getting loans, while banks have blamed the weak economic outlook for crimping credit demand.

Bank of England Governor Mervyn King weighed into the debate last October, urging the government to think of ways to boost lending, such as giving banks a fiscal incentives to lend to SMEs.