The main UK banks have reached agreement with the Treasury to increase lending to small and growing businesses – providing an extra 15% in loans, while also supporting the UK’s regional growth agenda. Very good news it might seem.
But just what is this likely to mean in practice for Northern Ireland? The fear is not very much. Joanne Stuart, chairman of the Institute of Directors in Northern Ireland, explains: “The total amount committed through Project Merlin is £190bn, of which £76bn is specifically for SMEs. There has been no indication of a regional split on the £76bn and we have heard nothing from the banks in Northern Ireland regarding this.
“It is worth noting that although amongst the big four banks here, only Ulster Bank – through RBS – signed the agreement: HSBC, Santander and Barclays also have a presence in Northern Ireland. In our view, the finance minister should be asking each of the banks for details on how much will be allocated to Northern Ireland.”
Indeed, anyone hoping that Project Merlin will quickly change the lending environment for businesses in Northern Ireland is likely to be disappointed. A spokeswoman for Barclays explains: “Merlin was announced relatively recently and at the moment it is a framework agreement and a lot of the detail behind it is rolling out now and needs to be clarified. Within the next few months it will become clearer. At the moment we can’t give you clarification for what it means for Northern Ireland.”
Ulster Bank confirms that Project Merlin will influence the availability of funding for SMEs in Northern Ireland, but declines to say at present how this will happen, or to what extent. An Ulster Bank spokesman says merely: “We remain committed to making lending available where there is creditworthy demand and Ulster Bank will continue to play its part in Northern Ireland.”
Businesses here remain dependent on a different Big Four of banks from those in the rest of the UK. Along with Ulster Bank, the market leaders are Northern Bank (owned by Danske Bank), First Trust (owned by Allied Irish Banks) and Bank of Ireland. AIB and Bank of Ireland have their own concerns, having been rescued by the ailing Irish government. There are obvious worries that their lending to businesses in Northern Ireland could be badly affected.
First Trust denies that its problems are leading to a withdrawal from business lending here. “First Trust Bank is keen to meet the needs of SMEs and we continue to support viable businesses,” says a spokesman. “SMEs are a critical sector for First Trust Bank and will remain so into the future…. Many of our customers are still actively seeking to reduce their debt levels and as a result we are experiencing a reduction in the general demand for credit. Our lending criteria remain the same in that we look for good solid businesses with the ability to repay.”
Northern Bank seems keen to expand its loan portfolio here and stresses its commitment to the principles of Project Merlin, despite not being a signatory. A spokesman explains: “Northern Bank is already demonstrating many of the same principles of the project in relation to lending expectations and supporting regional growth.
“Northern Bank has consistently supported business growth and is continually responding to the challenges and opportunities in the local economy through our strong commitment to enabling economic regeneration and business growth in Northern Ireland. That commitment to supporting business is there not because we are compelled to do so by project parameters, but because we firmly believe in the value of the finance, services, relationships and expertise that we can bring to trading businesses in Northern Ireland – a combination that is attracting many local companies to Northern Bank.”
Santander volunteered to sign-up to Merlin, despite not being one of the largest UK banks. But it aspires to join the club and to grow its business in Northern Ireland. Spokesman Andy Smith says: “We have grown our lending by 16% in 2009 and 26% in 2010. We are happy to say we will grow our lending, because that is the only way we will grow our market share. We are committed to growth across the piece and in all regions.”
Talk of expanding lending will be welcome news to small firms, but the cost of borrowing is just as important as availability. Roger Pollen, head of external affairs at the Federation of Small Businesses, explains: “Obtaining credit from banks remains a major concern for many FSB members. Our recent survey figures revealed that around 84% of small businesses are not approaching the banks for loans, with many saying they have already been refused, or the cost is too high.
“In addition to this, those small firms that are using the banks as their main source of finance are telling us they are being penalised by high interest rates. This is a worrying trend, especially when we consider that the base rate is currently at an all time low.
“On face value, it is encouraging to learn that Project Merlin has been agreed and claims to ensure that almost £200bn will be lent to businesses across the UK. However, while the full details of the agreement – including the full implications for business owners and banks in Northern Ireland – remain to be seen, the FSB’s welcome must be one with reservations and caution. As with all agreements, it is necessary to consider three things; why was an agreement necessary, what is in the small print, and how enforceable is it?”
Pollen adds: “The FSB is uneasy that while £76bn of the £190bn agreed by the banks will be ring-fenced specifically for small businesses, some of this credit will only go to businesses looking to receive between £2m and £10m in equity finance and so will not assist the vast majority of smaller businesses that may need it most.”
Both the FSB and the IoD are calling for the business lending environment in Northern Ireland to become more competitive. The IoD’s Joanne Stuart says: “We would like to see movement from the British Bankers Association and the banks operating here on the plan for implementing the recommendations in the BBA’s ‘Supporting UK Business’ report, which are supposed to increase transparency on bank lending and improve access to finance in Northern Ireland.”
The BBA stresses that it is seeking to improve lending to small firms here as part of its Business Finance Task Force and that it has met with finance minister Sammy Wilson. It adds that banks in Northern Ireland – including those based in the South – have committed to continued financing of businesses here and that the task force – established last summer – will eventually lead to a £1.5bn UK-wide business growth fund. However, much of the focus of the Task Force is helping firms to improve their ability to present good business cases to lenders, to improve their chances of success, rather than necessarily increasing the pool of available finance.
Project Merlin also had other dimensions beyond increasing small firms’ lending – it committed banks to limiting the size of their bonus payments and to disclosing senior executives’ remuneration. And the banks agreed to support the Big Society – which has made few waves in Northern Ireland – and the regional growth agenda, through £200m to support the Government’s Big Society Bank and £1bn for regional initiatives.
Businesses here, though, will want something firmer than vague promises that support for regional growth is demonstrated at least as strongly in Northern Ireland as in Great Britain.