Small businesses query bank profits in light of lending levels

Lloyds Banking Group recorded £1.6bn profit for the first half of the year today, following HSBC’s posted £7bn gain on Monday.  

While HSBC survived the financial crisis without government support, the 41 per cent taxpayer-owned Lloyds has been forced to meet government lending targets as a condition of its bail-out.

Lloyds reports it has extended to SMEs a total of £4.1bn credit, which is ahead of its government-agreed target.

Phil McCabe, a spokesman for Forum of Private Business, which supports small businesses in the UK, said the amount of lending from banks is still not enough.

‘I think it particularly galling when you put the profit these banks are posting next to the kinds of sums of money our members are seeking,’ he said. ‘In order to be able to meet renewed demand, in order to be able to grow their businesses and therefore act as a catalyst for sustained economy recovery, which of course the government suspects them to be, you’re talking thousands or, at the most, tens of thousands of pounds of funding needed. When you put that next to billions of pounds worth of profit the banks are posting it is particularly galling.’

The banks’ recorded profits follow figures released last week by the British Bankers’ Association (BBA), which indicate that lending to UK small firms is in decline.

According to the banking trade association’s figures, new loans to small firms increased by £75m between May and June 2010, but year-on-year term lending has decreased by £269m, compared to June 2009 – when the economy was still in recession.

Average monthly loans have declined by almost half since 2008, when banks lent an average of £991m to small firms. In 2010, the average monthly loan rate is £564m.

While Lloyds says it is meeting government lending targets, its net credit to businesses remains flat. McCabe said that there is no lack of demand for funding from SMEs.

‘Sure, there’s those who are focusing on increasing deposits into banks, but from our members we know there is more need of finance coming out of a recession than during the recession because there is always increased demand and you need finance to be able to satisfy that demand,’ he said. ‘Our members are saying the demand is there but the willingness of banks to lend isn’t.’

While the government has obvious sway over publicly backed institutions such as Lloyds and the Royal Bank of Scotland, McCabe argued there is no reason why it should not encourage privately owned banks to increase lending.

‘There’s two sides to every coin of course, but that doesn’t take away from the fact that all banks, those that have benefited from public money and those that haven’t, should be playing ball when it comes to small business lending,’ he said.