UK Govt, Banks to Step Up Lending for SMEs, Cutback Staff Bonuses in Project Merlin

Steven Bobson, Europe & Americas Editor
February 09, 2011 /

UK Chancellor George Osborne has said today that the government and key players in the banking industry have signed a pact to increase this year’s lending target for SMEs by 15 percent, a development that met lukewarm reactions from business leaders.

The deal, called Project Merlin, will allow SMEs to collectively borrow £76 billion from the largest banks in UK, which include Royal Bank of Scotland (RBS), HSBC, Barclays, Grupo Santander, and Lloyds. Osborne made the deal public following a meeting between executives from the participating banks.

Venture Finance, a member of the ABN AMRO group and an invoice and asset based lender, has reported November last year that accountants were reporting acute problems for UK SMEs who wanted to raise funds.

Its research, Credit Check survey, showed that almost two-thirds (60%) of accountants in the UK felt that traditional bank finance is still barely available to UK SMEs.

The survey has reflected the grim picture for small- and medium-sized businesses. For example, 57 percent of responding accountants said their clients have been plagued by cash shortages.

On the other hand, Peter Ewen, the Managing Director of Venture Finance, said the recent £1.5 billion growth fund for SMEs which was set up by a group of British banks is a welcome development.

The overall lending target for Project Merlin agreed by the banks has increased 6 percent to £190 billion compared with £179 billion in 2010. Project Merlin necessarily requires that banks who signed in the deal will agree to cutback the bonuses of the five most senior employees and board members below board level.

For instance, Stephen Hester, the chief executive of state-backed Royal Bank of Scotland, will receive a shares-only bonus of £2.04 million for 2010 while Eric Daniels, chief executive of Lloyds Banking Group, will receive a shares-only bonus of £1.45 million for last year.

But Project Merlin also mandates that the banks’ top executives will not receive the remuneration and bonus unless the banks could comply with the lending agreement.

Complete disclosure of the staff’s remuneration and bonuses will be submitted to the Financial Services Authority.

In three years, funds for smaller companies coming from the Business Growth Fund will increase from £1.5 billion initially to £2.8 billion.

The banks have also agreed to shell out £200 million for the Big Society Bank as a start-up fund.

PricewaterhouseCoopers will audit every transaction of the deal while the Bank of England will publish details of the banks’ compliance or non-compliance with Project Merlin every quarter.

 

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