A number of financial institutions in the United Kingdom have expressed their doubts in the government’s credit easing policy. Banks say that this may result to loans that are priced lower for small and medium sized businesses.
The Treasury is still looking over the different details o the credit easing policy. This is going to aid in reducing the cost of loan for SMEs by providing a lower cost state backed funding for lenders.
However, a month before the final policy is due to be released, banks such as HSBC, Barclays and Santander UK are not convinced that the policy will be able to give them the cheaper funding than they can find in other sources.
This reaction from the banks is a big problem for the UK government as they now find ways on how to change the lending to SME sector following doubts on the Merlin targets for 2011 that were not good enough to clear the supply of credit. With this, five of the biggest financial institutions in the UK have given £74.9 billion of SME loans last year which is lesser than their £76 billion goal.
Instead of having new lending targets for this year, Chancellor George Osborne is hoping to ease in a £20 billion national loan guarantee policy that will run for two years, which is meant to underwrite loans to banks. Financial institutions will be asked to pass on low cost funding to businesses that have less than £50 million through reducing rates on loans and overdrafts by at least 1 percentage point.
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