Small Business Bank Lending to Increase to £190bn
Britain’s "big four" banks have agreed to lend £190 billion, show restraint and offer greater transparency when it comes to paying bonuses this year.
After bank bosses were reported yesterday to be "livid" at a last-minute £800 million bank levy, business lending will increase by around 10% on last year’s figures (£179bn) to £190bn. The final details of the deal were announced at the House of Commons this afternoon by the Chancellor, George Osbourne.
Project Merlin, as the deal with the banks was named, included the Royal Bank of Scotland (RBS), HSBC, Barclays and Lloyds. The Treasury has been involved in these intense talks with the big four since November 2010.
The aim of the project has been to encourage bank lending to small businesses as well as restraint in the payment of bonuses at the banks. RBS and Lloyds, the part "taxpayer-owned" banks (at 84% and 41% respectively), has limited bonus cash payouts to a maximum of £2,000 with the rest in shares. However the bonus payout at Britain’s top banks is still expected to be in the region of £6 billion this year.
The Business Growth Fund, a "flagship" £1.5bn equity fund which has not yet been launched, has been increased to £2.5bn although, so far, the fund is only to support 75 businesses a year. The full amount of investment is likely to be spread over a 7-10 year period. Companies with between £10 and £100 million of sales will be able to apply for funding with investments of £2m-£10m available in return for an equity stake in the applying companies.
The Big Society Bank project has also benefited from the bank talks with an injection of £200m.
Included in the negotiations with the banks was the need for a new customer service agreement with small business clients.
The Bank of England is understood to be monitoring the performance of lending to small business in order to guage the level of the banks’ involvement in the spirit of the new deal with reports due every 3 months.
Speaking about the bank lending deal, Business Minister, Vince Cabkle said:
“Today’s agreement is a good step forward for British business. Banks have made a commitment, with independent monitoring, to increase credit to UK firms and especially to small and medium sixed enterprise.
“Tougher mandatory disclosure rules covering the top eight executives outside to the board will give the UK the most transparent financial regime in the world, while linking executive pay to lending gives businesses a crucial assurance that bank executives have a stake in the real economy.
“This is part of an ongoing process of reform of the banking sector. We are in no way pre-judging the big structural questions being addressed by the Independent Commission on Banking, including competition and the structure of banks.”