Banks were today accused of "sucking £50bn out of British businesses" over the last year after the latest lending data suggested small companies in particular continue to struggle to get loans. Official data from the Bank of England chimed with its governor Mervyn King's own recent comments that credit conditions are only improving slowly in the wake of the financial crisis. As net lending to businesses in all sectors deteriorated in June it left the second quarter as a whole down £8.6bn on last year.
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Over the whole of the last year net lending flows – which take account of loans going to clients as well as money being repaid to banks – are down £49.8bn. That compares with a £9.4bn fall the year before and a rise of £85bn a year earlier. The Liberal Democrats' Treasury spokesman, Matthew Oakeshott, accused the banks of starving British businesses of cash as they scramble out of recession. "Banks have sucked £50bn out of British businesses over the last year," he said. "The excuse the banks give is that big businesses are repaying loans but if that is so, they have more money available for smaller businesses who desperately need it."
The Bank of England figures showed that lending to small businesses deteriorated for the eighth quarter in a row, down an annual 3.6% in April to June this year. That chimes with a report this week from the Bank's regional agents that smaller businesses had "benefited much less than their larger counterparts" from a modest improvement in credit conditions since the start of the year. Oakeshott said the latest news from the Bank highlighted a "dangerous size divide in bank lending" between big businesses which have options if banks will not lend, such as issuing debt or equity, and small and medium-sized firms "who are stuck". "In Biblical terms what we have here is a case of unto to him who hath it shall be given," he added.
Banks argue that since the downturn demand for loans has not returned. At the same time they say they are seeing many clients repay loans, thus keeping net lending low. The British Bankers' Association (BBA) cited the Bank's account that demand for bank finance generally remained weak. "At a time when businesses are reducing overheads by paying down their loans and overdrafts, it has to be expected that net lending figures appear lower as a result," said a BBA spokesman. "The banks have committed to offering every assistance to viable businesses," he added, including the launch last week of a taskforce to report to the government on how banks can help small businesses through the recovery.
The Federation of Small Businesses (FSB) has been particularly vocal about the struggle to get credit, countering that demand from small firms is there but that the conditions banks put on loans were impossible for most companies to cope with. Its chairman, John Walker, said today's lending data showed the pressures facing small companies. "We are concerned that the interest rates applied to loans for larger firms seem to be coming down but this is not being replicated for businesses at the smaller end. Research by the FSB shows that most firms with existing credit are seeing a rise in the rates they pay – some by as much as 10%," he said.
The FSB wants to curb the current reliance on big banks for funding and is urging the government to investigate alternative sources such as regional stock exchanges or credit unions.
