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16 February 2012 | PR 12/31

Loughborough Economics Professor calls for more competition as Project Merlin fails to work magic

Professor David Llewellyn

 

Figures released by the British Bankers’ Association reveal that the five main UK banks have missed targets for lending to smaller businesses (SMEs) by more than £1bn.

Under Project Merlin, Barclays, HSBC, Lloyds Banking Group, RBS and Santander UK, were to make it easier for smaller firms to access credit.  While the latest figures show an increase in overall lending, only £74.9bn was loaned to SMEs – less than the government’s £76bn target.

Loughborough University’s Professor David Llewellyn said:  “SMEs are particularly dependent on banks for financing.  Because of the recession, and the capital and liquidity constraints faced by banks, the government has sought to avoid a credit crunch in SME lending through the Merlin project.  However, it has not proved very successful.”

Banks have blamed the poor economic backdrop and fewer firms coming forward for credit, while the Federation of Small Businesses (FSB) has criticised the scheme it says meant “that money is going to bigger businesses and not new and fledgling firms that need it.”  The FSB’s own survey indicates SMEs as more likely to obtain finance through savings or friends and family, rather than bank credit.

“The five Merlin banks fell short of the £76bn target largely due to weak lending by the state-owned Royal Bank of Scotland,” explained Professor Llewellyn.  “The position is in fact worse than that because net lending (i.e. new money) to SMEs declined last year by £10bn and the cost of loans to SMEs rose.”

Project Merlin will not be repeated this year.  Instead, the government is negotiating with banks over a national loans guarantee scheme it hopes will increase the flow of bank lending to the SME sector and lower the cost of loans by up to 1%.  “But what is really needed,” urged Professor Llewellyn, “is more competition in the market for SME lending as over 80% of such loans are made by only five banks.”

Professor Llewellyn lectures in Banking and Finance at Loughborough University’s School of Business and Economics.  He acts as Vice Chairman of the Board of the Banking Stakeholder Group at the European Banking Authority (EBA) and is a regular commentator on banking issues.

−ENDS−

For all media enquiries contact:

Jon Duckworth
Marketing Assistant
School of Business and Economics
Loughborough University
T: +44 (0)1509 228849
E: J.R.Duckworth@lboro.ac.uk 

Notes for editors:

About the School of Business and Economics

Loughborough University’s School of Business and Economics is consistently ranked in the Top-10 UK universities for Business and Management by The Times, The Independent and The Guardian.  It was ranked 2nd for Finance & Accounting and for Management in The Sunday Times University Guide 2012.

It is one of just 1% of business schools in the world to be EQUIS-accredited by the EFMD.

95% of the School’s Economics research was rated as of ‘international standard’ by the 2008 RAE.  60% of Business research was rated as ‘world-leading or internationally excellent’.

About Loughborough University

Loughborough is one of the country’s leading universities, with an international reputation for research that matters, excellence in teaching, strong links with industry, and unrivalled achievement in sport and its underpinning academic disciplines.

It was awarded the coveted Sunday Times University of the Year 2008-09 title, and is consistently ranked in the top twenty of UK universities in national newspaper league tables. In the 2011 National Student Survey, Loughborough was voted one of the top universities in the UK, and has topped the Times Higher Education league for the UK’s Best Student Experience every year since the poll's inception in 2006. In recognition of its contribution to the sector, the University has been awarded six Queen's Anniversary Prizes.

Loughborough is also the UK’s premier university for sport. It has perhaps the best integrated sports development environment in the world and is home to some of the country’s leading coaches, sports scientists and support staff. It also has the country’s largest concentration of world-class training facilities across a wide range of sports.

It is a member of the 1994 Group of 19 leading research-intensive universities. The Group was established in 1994 to promote excellence in university research and teaching. Each member undertakes diverse and high-quality research, while ensuring excellent levels of teaching and student experience.

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