According to the BoE figures, the tentative recovery witnessed in business loan growth during 2010 has begun to decline again in 2011. Secured and unsecured lending, meanwhile, which was relatively stable through 2009-10, has slowly entered positive territory this year.
Business lending growth peaked in Q3 2007 and then plummeted with the onset of the financial crisis, bottoming at -16.9% in Q2 2009. Since then, bad debts have been steadily rising at banks and building societies. Write-downs of non-financial corporate debt reached a record £2.481bn ($4bn) in Q4 2010. This represented almost half of the total £5.033bn write-offs of loans by banks and building societies in the same period.
Project Merlin, introduced in February this year, aimed at providing £190bn of loans to businesses this year, which would represent an increase of £11bn over last year. Instead these figures show that the stock of lending to businesses by UK banks and building societies fell by about £5bn in the three months to February 2011.
Data from five major UK banks (Barclays, HSBC, Lloyds Banking Group, Royal Bank of Scotland and Banco Santander) indicated that their net lending to businesses was -£2bn in Q1 2011.
